Considering renting out spare office space?

10 June 2019

As tempting as it may be to rent out that spare, empty desk in the corner of your office to bring in some extra revenue, unless the right precautions are taken, you may find that doing so creates more trouble than it’s worth. Here are some points to consider:

Check your own lease

You are likely to find that your own lease may prevent you from sharing occupation of the premises, or even subletting all or part of them, in which case entering into such an arrangement would be a breach of your lease. As a worst case scenario, the landlord could try to take steps to forfeit your lease. If your lease does permit such sharing or subletting, the chances are that you will still need to obtain your landlord’s formal consent to rent out any spare space and will need to pay its costs of considering the request and any legal or surveyor’s costs it may incur. Obtaining a formal licence to underlet can cost hundreds of pounds and can often take some time to agree.

As well as ensuring that you are allowed to share your premises with another, you will also need to check that you are insured to do so.

 

Avoid inadvertently granting security of tenure

Under the Landlord and Tenant Act 1954 (the “1954 Act”) tenants can acquire statutory rights of occupation, meaning their tenancy is protected. In such cases, the tenant will be automatically entitled to a new tenancy on similar terms. As landlord, you will only be permitted to terminate the tenancy in limited circumstances, and trying to do so could be very costly, as you may have to pay the tenant compensation and possibly incur legal fees.

A tenancy for a term of six months or less does not attract security of tenure, but if you agree provisions to extend that term, or you renew the existing arrangements on the same basis, meaning the tenant has been in occupation for a year, this is where dangers can arise when renting out spare desks or offices.

The parties can agree to exclude the 1954 Act security of tenure provisions by following a procedure whereby the landlord serves a prescribed form of warning notice and the tenant declares their understanding of giving up valuable rights which would otherwise be granted by the 1954 Act. This will help to protect the landlord’s interest, but it is important to ensure that the procedure is carried out correctly.

 

A lease or a licence, what’s in a name? 

It is possible to inadvertently grant a tenant a lease rather than only a licence. Remember that calling the tenancy agreement a lease or a licence will not make a difference, it is the content of the document, not the name of it, that will determine whether or not the occupier is a tenant with rights, or just a licensee. Each case will depend upon its facts, but if renting out shared office space and trying to make sure that an occupier is not given a legal interest in the property, you should ensure that the occupier is not granted exclusive possession of a particular room or area for payment of rent, and you must not grant them occupation for a fixed term. There are a number of clauses which can be included in a licence which can indicate that the parties intended to create a licence, rather than a lease. It may be safer to grant an excluded lease for a longer term than necessary, but to include break options so it can be brought to an end earlier.

 

Beware of informal arrangements

Although agreeing terms verbally or with a handshake may seem like an easy, low-cost option, if you do not have a formal document in place which sets out the agreed terms, this will leave you exposed to disputes with your occupier.

 

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We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.

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