Over the past two years, the real estate sector has been disrupted by a host of frontpage events, including the COVID-19 pandemic, natural disasters and civil unrest, just to name a few. These events have forced many commercial office owners and tenants to confront a question many had not expected to answer so soon: Where will the workers of the future carry out their business?
While prior to the COVID-19 pandemic, many workers, in particular, millennial workers, were already beginning to take advantage of more flexible, remote and hybrid work environments, the notion of a flexible work environment was certainly not the majority model nor a concept most office owners or users had at the forefront of their business models. However, after weathering nearly two and a half years of pandemic life, it is safe to say that recent events have propelled those trends forward and solidified them as the current (and potentially long-lasting) dominant workplace models.
However, as commercial office owners and users pivot out of triage mode and begin to plan for the future, we can look back at our collective experiences from the last few years and determine how commercial office space needs should be conceptualized in the years to come.
To help guide you, as tenants and employees begin to re-enter the workplace, we have highlighted a few key lease provisions that may take on new importance in your future lease negotiations:
- Use — Landlords and tenants are thinking creatively about the ways that users interact with the space. Previously, provisions requiring continuous occupation of office space, and narrowly defined permitted-use clauses were considered commonplace provisions. Now, tenants seek flexibility in their operations to ensure they can continue to adapt to the ever-evolving expectations of their workforce. No longer will employees be expected to be physically present at their desk from nine to five, and in some cases employees are only expected to be in the office on an intermittent basis — a few days a week or month. As such, tenants will expect leases to contain clauses allowing for build-outs to provide more private offices which employees can “check-out” for the day when they are in the office, and more conference and collaboration rooms that employees can utilize when holding in-person meetings.
- Force Majeure Provisions — During COVID, tenants often took the position that they shouldn’t have to pay rent because they couldn’t use the premises to conduct business. Tenants would point to the force majeure provision within their lease as the basis for such argument. Landlords responded by saying that the force majeure provision didn’t apply because the tenant was still physically able to write and deliver a rent check. Moving forward, the scope and effect of force majeure provisions will be heavily negotiated.
- Assignment and Subletting — If the primary purpose of office space is to accommodate collaborative meetings, rather than individual cubical space, tenants may consider reducing their real estate footprint through assigning or subletting their space. Previously, assignment and subletting provisions were restrictive on a tenant’s ability to sublet or assign the lease, and oftentimes required a landlord’s prior written consent. Moving forward, it is likely that tenants will carefully review their leases to weigh options to readjust an existing footprint.
Many events over the past few years have forced the adoption of new ways of working — and in turn, landlords and tenants are reimagining the office environment, and re-thinking lease negotiations. As a result, permitted use, risk of casualty, insurance considerations, and assignment and subletting will be a focus of lease negotiations.