What is a Conventional or Leasehold Office?
A conventional office is any office space that is leased for a long period of time. In the United Kingdom, the average lease length is approximately 6 years. Conventional offices are also known as leasehold offices and are typically the first choice of businesses that require long-term office space.
They're a popular option among companies willing to commit to a longer rental period and who want to have the freedom to decide on the layout and equipment of their workspace, without having to commit to buying a property.
Leasehold office space best suits businesses that are already established and have sufficient capital to set up the space. These kinds of offices are found throughout the UK, in areas such as Central London, the Midlands, and Yorkshire.
The Advantages of Conventional Offices
Conventional offices have several advantages over premises rented under a license. A leasehold office gives the occupier exclusive right to the use of the space, whereas licensed office space provides the tenant with limited rights. Moreover, a leased office space grants the tenant a handful of ownership rights for the duration of the lease. For example, a leasehold tenant has the right to carry out alterations and modifications to the space, which is not the case with licensed office space.
Additionally, tenants may have the option to transfer the lease to a third party by requesting an assignment of lease from the landlord.
A conventional lease cannot be revoked by the landlord before its expiry date, so leases offer additional peace of mind as there's no risk of short notice termination. Additionally, because of their longer length, lease contracts mean that tenants don't need to spend time negotiating and looking for suitable office space every time the contract ends.
There are benefits from a fiscal point of view too since expenses incurred in an office lease can be deducted from profits in the annual tax return.
The Disadvantages of Conventional Offices
When leasing an office, the occupier is responsible for maintenance and upkeep, so this may not be the most cost-effective solution for business owners who prefer an all-inclusive model, or who prioritise cost control.
Moreover, this type of office space is often leased unfurnished, which means that there's a moderate to high initial cost involved in getting the equipment needed to make the office operational.
Contract terms may be another con since they offer little flexibility if the tenant needs to vacate the space due to downsizing or expansion requirements.
What Costs are Associated with a Conventional or Leasehold Office?
The main cost associated with a conventional office lease is the actual rental rate. This is sometimes known as the lease premium. Rental rates are often payable on a monthly or quarterly basis.
Other costs to consider when leasing a conventional office include service charges. These are outlined in the lease contract and refer to the costs incurred by the landlord to ensure the supply of certain services or utilities. Often, service charges involve property or facilities management expenses, such as the maintenance and repairs of common areas and the building structure, taxes, and property insurance.
The following costs that may or may not be included in the lease premium:
- Operational costs: These usually involve the expenses incurred in maintenance, repairs, security, cleaning, and insurance. Additional operation expenses include those needed to deliver utilities, waste disposal, etc.
- Business rates: These are determined by the relevant city council and are calculated taking into account the building's location and rateable value.
- Building insurance.
- Contents and business interruption insurance.
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