Office Leases: Adapting To The New Normal
The Government of Ukraine recently introduced a so-called “adaptive quarantine,” allowing the easing of restrictive measures in certain regions, depending on the pandemic situation. Businesses are reopening and gradually returning to the normal course of operation.
The quarantine introduced a “new normal” requiring companies to adapt their business approach to the new conditions not just for several months, but also with a longer-term perspective. Despite the quarantine-influenced changes, the physical office will continue to maintain its importance for most companies.
Landlords and tenants will need to adapt office leases to the new conditions, to address the safety of their workers and the new work models, while preserving the traditional operation of their businesses. Below we have set out a high-level overview of new trends in office leases and key areas for tenants to consider when navigating in these challenging times.
We are at your assistance to renegotiate favorably lease terms and other real estate-related contracts. If you wish to discuss the below and explore each of the topics in more detail, according to your specific circumstances, please get in touch with us.
Office lease trends
Adopt and adapt. The forced experiment in remote working is expected to reinforce the need for businesses to adopt agile working conditions and adapt the office to deliver collaboration while preserving the safety of the workers. Businesses will develop a way to optimize the use of space, taking advantage of the experience gained during the work-from-home period due to the COVID-19 quarantine.
Agile era. The switch to mass remote working, caused by the quarantine restrictions, proved to be effective for many businesses, including those that had rarely practiced this before. For some businesses, quarantine also served as a wake-up call for the necessity to digitize the work streams, review the business model and become more flexible. All these factors, in combination with the uncertainty around COVID-19, are expected to further accelerate the shift to agile work and adjust the standards of office leases.
Collaborative office. Despite the switch to agile work, the physical office will maintain its importance for collaboration with colleagues, networking, employee well-being and enhancing productivity. However, office configuration and size may be reconsidered. High density, large, open space offices are now up for debate. Tenants tend to reassess the necessity of renting current areas, as well as the existing workplace model.
Flexible lease. New market conditions are expected to make tenants more determined to negotiate flexibility in leases. Quarantine is likely to shift the trends in office leases from long-term leases to shorter-term ones. When considering new or adjusting existing office leases the parties will focus on ensuring maximum flexibility in rent review mechanisms, adjustment of the leasable area of the premises and lease termination options.
Actions for tenants to consider
Lease flexibility: When negotiating new or considering amending existing leases, pay particular attention to the following:
- rent calculation and review mechanisms: consider including some temporary rent relief mechanisms in case of limited business operation
- adjusting leasable area: consider agreeing with the landlord the possibility of and procedure for adjusting the area of the leased premises under certain conditions (for example, reducing the leasable area at the tenant’s request in case of change of business conditions)
- termination rights: certain flexibility can be achieved through introducing a tenant’s right to terminate the lease after a certain lease period
- force majeure provisions: carefully consider whether force majeure provisions include epidemics, pandemics or related restrictions
Works and repairs: When adapting to new working conditions, additional safety precautions may be required to ensure employees’ safety. For example, consider installing dividers and transforming open areas into more private spaces. Remember to verify if the lease agreement requires any notices to the landlord in this regard.
New policies: Communicate with the landlord regarding the rules of using common areas to ensure the safety of the employees.
Management of premises: Keep up to date with public space cleaning and disinfection guidelines, and other workplace safety and health requirements. Consider introducing the safety compliance obligations of the parties to the lease agreement.
Workplace adjustments: Check out our Reopening Playbook: Ukraine, summarizing key measures for workplace rethinking, such as reorganizing work desks and flexible work organization guidelines.
Managing Partner Baker McKenzie
Partner Baker McKenzie