It is common practice for a landlord to insure the building and then to be reimbursed by the Tenant for the cost of the insurance. Landlords will typically charge Building Insurance separately to Service Charge.

Building Insurance covers the fabric of the building, but not any occupiers contents, which would need to be insured separately.

This is a charge by the Landlord for collectively running the building on behalf of the Tenants.

The Service Charge is typically charged quarterly in advance (in the same way rent is). The quarterly charge is based on the annual forecasted budget with any adjustments below or above budget made at the end of the accounting year.

Included in the Service Charge will be a number of costs, which can include but not limited to: security/building reception, cleaning of common areas, lighting and power to common areas, lift maintenance, fire alarm maintenance, pest control, periodic redecorations – both inside and out, building repairs and typically will include a management charge.

The cost of the Service Charge will depend greatly upon the size and the age of the property. Large, new office buildings benefit from both economies of scale and new mechanical and electrical services, which require little maintenance. Older buildings with tired plant require more maintenance and repairs and thus are more costly. Small properties lack the economy of scale of larger buildings. The most singular most expensive item on a Service Charge budget is typically security. If an office building has a manned reception, either during offices hours, or 24/7, this is typically the largest cost on the budget.

Service Charge rates per square foot can range from anything from £5.00 per sq ft up to £13.00 per sq ft. However, Service Charges, with some form of security in a medium size building, would typically range from £8.00 – £10.00 per sq ft.

To draft, negotiate and agree a Lease and ancillary documentation should take approximately six to eight weeks.

In addition to the Lease it is possible that an Agreement for Lease, Licence to Alter and Rent Deposit Deed also need to be drafted and agreed. The quickest transactions tend to be where Landlord and Tenant deal direct with no third party. In the event of an Assignment or a Sub-Letting, a Superior Landlords consent is required. This can add delays.

The type and level of surety required on a Lease is entirely at the Landlord’s discretion. It is typical for a Landlord to request three years audited accounts from the occupier and they will then base their decision on these accounts and the length of time the Tenant has been trading for. Rent Deposits can range from amounts equivalent to three to 12 months’ rent and are likely to attract VAT on top. In most instances six month deposits are common, although the Landlord and their advisors will have some regard to the industry accounting benchmark.

An office fit-out can take anything from a couple of weeks up to 12 months, depending on the amount of work required and the quantity of space taken.

However, most office fit-outs take between eight and 10 weeks. It is important to be aware that telecom lines and bespoke office furniture often have long lead in times.

Business Rates are a form of Council Tax for commercial property and are administered by the Local Authority. The “rateable value” of a property is assessed by the Government’s Valuation office and are based on historical rental values of the property.

Rateable values are typically reassessed every five years and a multiplier – known as the Uniform Business Rate – is applied to the rateable value which generates the annual tax applied to the property.

Business Rates payable per sq ft in Central London can range from less than £10.00 per sq ft to in excess of £40.00 per sq ft in expensive locations, such as Mayfair in the West End.

Landlords have the opportunity to elect to charge VAT on their building. By electing the property for VAT, Landlords are able to reclaim VAT on building and refurbishment works, but are also then forced to charge VAT on Rent and Service Charge.

The vast majority of properties are elected for VAT. However, a large proportion of properties in the City of London are not VAT elected. This is historically due to traditional City occupiers being unable to reclaim VAT or only having a partial VAT recovery.

Stamp Duty Land Tax (SDLT) is payable on commercial leases. HMRC have an easy to use SDLT calculator on their website. One of our leasing team will be happy to help you with this process.

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