KNOWLEDGE CENTRE

Serviced Office Review & Rental Rates Guide

Welcome to the OfficeXchange.co.uk KNOWLEDGE CENTRE

 

This is where you will be able to find practical and thorough information regarding the office rental market. Here you will be provided with detailed resources that give an informative guide to key rental factors such as:

 

- General Costs When Renting Office Space

- Recent Market Activity Overview

- Uptake and Requirements Variations

If you require any more information that we haven’t covered already, please do not hesitate to contact us on 0845 340 9232.

HIDDEN COSTS

1. Landlord's approval for alterations

In a majority of cases, before a tenant may undertake any non-structural alterations to their office space, they must receive formal consent from their landlord for such works. A "License for Alterations" is then appended to the lease once the landlord approves all plans for alterations.

 

 

2. Dilapidations 

A tenant’s repairing obligations under either an FRI or an IRI lease are often referred to as dilapidations. In simple terms, this involves the tenant reinstating their office in to the exact condition that it was in when their lease first completed.

 

 

3. Service charge increases

The running and repairing costs or "service charge" of any building are subject to annual review and can actually go up, or down.

 

 

4. Refurbishment / Fit out costs

A variable cost entirely dependent on the needs of an individual business and the level of quality that they require from their office design/fit out.

 

 

5. Survey of the premises

A building survey is recommended to assess the structural integrity and services of the building. A survey is particularly necessary if the lease will be a fully repairing and insuring one (FRI). Any issues that the survey brings to light will then need to be dealt with in advance of the lease completing by the tenant’s representatives and advisors.

 

 

6. Contents insurance

Insuring the contents of a specific demise is the responsibility of the tenant and covers any losses / damage that may be caused by circumstances such as theft and water damage.

 

 

7. Solicitors' costs

Usual practice in respect of any new lease direct from the freeholder of a building is for the tenant and the landlord involved to cover their own legal fees incurred. It is a point of negotiation over who pays the landlord’s legal and also professional (such as surveyors) costs. 

Legal Aspects of renting an office

·         Read contract properly which is given by owner

·         Check flexibility in the lease contract

·         Check insurance policy’s thoroughly

Rental costs

Serviced offices may request references and credit checks to confirm you are able to pay your rent, although often not required. Rents are normally paid monthly in advance. It is important to ensure any payments due are paid on the due date, as standard contract terms usually give the office provider the rights to recover additional charges. These could be considerable.

Rental periods are often very flexible with serviced offices; can vary from one month up to six months. Research shows there are serviced offices that take tenants on a day-to-day basis. Sizes of serviced offices can be widely diverse, and the rent will vary according to the sizes.

In addition of the size variation, there are a variety of other factors that determine the rental costs including: Location within the country, Quality of the office space, Location within the office building, Number of windows, Number of desks available, Further extra services offered

Charges can vary between solicitors and depend upon the type and complexity of the tenancy agreement you want. Before you decide who to use, check with a few local solicitors to compare their charges. Remember that you may have to pay more for a more experienced solicitor.

Tenancy agreements

A tenancy agreement is a contract between you and your tenant. This contract can be written or verbal. In England and Wales there is no law to say that landlords have to provide a written tenancy agreement, but it is a good idea to do so. Otherwise, if you have a dispute with your tenant about the terms of the agreement, it is your word against theirs as to what was agreed. The main advantage of having a written tenancy agreement is that it sets out your rights and responsibilities as a landlord in a way that is legally enforceable. This keeps disagreements to a minimum because both sides know where they stand.

Drawing up your agreement

Once you have appointed a solicitor, they will explain your rights and responsibilities as a landlord. You then have the opportunity to explain your specific needs and concerns. This will help the solicitor to draw up a tenancy agreement that is tailor-made to your needs. During this process, your solicitor will cover the following issues with you.

Using the agreement

Once you have a tenancy agreement, make sure that both you and your tenant sign it at the start of the tenancy. You must give your tenant a copy of the agreement if they ask for it.

Disagreements

If you do have a disagreement with your tenants, there are several ways your solicitor can help. Whether it's a simple case of checking your legal rights, or something more complicated such as adapting your tenancy agreement, negotiating a solution or even going to court, your solicitor has the knowledge and experience to support you. 

Tax aspects of property letting

There are many issues for the prospective investor to take into consideration before deciding to plunge into property letting. Good impartial advice is needed from lawyers, banks and surveyors. This briefing assumes that specialist advice has been taken and will concentrate on the tax aspects involved in the purchase, letting and sale of let residential property. It will also consider the options available for holding property.

 

Buying UK property

Stamp Duty Land Tax (SDLT) must normally be paid by the purchaser of the property within 30 days of completing the purchase. The rate of the tax is determined by the value of the property and SDLT is payable on its full value at the rate of the band into which it falls. The rates currently vary between 0% and 4%.

Where the purchase price includes fixtures such as carpets, the purchaser is responsible for establishing a ‘just and reasonable’ apportionment of the sale price between the property and the fixtures. No SDLT is due on fixtures.

Letting property in the UK

The letting of property in the UK is treated for income tax purposes as a UK property business. Where more than one property is rented out, the letting of all the properties is treated as a single business, which allows a loss made on one property in a year to be effectively set against profits made on others. No distinction is made for these purposes between property let unfurnished and furnished, except for the special rules which apply to furnished holiday lettings (see below).

Make sure record keeping is good

Accounts should be prepared for the business in accordance with generally accepted accounting principles, although in most cases this should simply mean making sure that all rental receipts have been recorded and only expenditure of a revenue nature has been deducted in arriving at profits.

Receipts

Rents should be included on the basis of the sum actually due for the tax year. This means that any rent paid in advance that relates to a period after the end of the tax year should be brought into account not when it is received but in the following tax year. If you exclude such a receipt in year 1 make sure you remember to pick it up when you prepare your figures for year 2.

Expenses

You can claim expenses which are revenue in nature. Capital items cannot be claimed directly against income although some other relief may be available. You must also show that the expense is incurred ‘wholly and exclusively’ for the purpose of the letting business. If an expense has a personal element, it is generally apportioned, with only the business element allowed as a deduction.

Typical expenses that can be claimed will include:

  • advertising for tenants (but not for sale)
  • agents’ fees in relation to the letting but not the purchase or sale
  • expenditure on maintaining common areas of a building
  • fees in respect of finance arrangements
  • interest on borrowing to fund the purchase (don’t simply claim the total sum payable to the lender in the year as this will probably include some capital repayment as well)
  • expenditure on various forms of insulation (ie loft) can be claimed up to 1 April 2015 (there are some restrictions on this so you need to check carefully)
  • any expenditure on services such as gardening or cleaning that you agree to provide.

Expenditure on the building

There may be a particular issue in dealing with expenditure on the fabric of the property. A repair can be deducted from income but where there is a clear element of improvement that takes the property beyond its original condition, then the repair will be regarded as capital and cannot be claimed against income.

Common items of repair that can usually be claimed will include:

  • exterior and interior painting and decorating
  • repointing brickwork
  • damp and rot treatment
  • mending broken windows, doors, furniture and equipment such as cookers
  • replacing roof tiles, flashing and gutters.

Where expenditure is clearly of a capital nature and results in an improvement to the property, it may be possible to claim the cost of it in calculating the capital gain when the property is sold. Improvement expenditure is deductible against the gain, provided it is still reflected in the state of the property at the time of the disposal.

Expenditure on furniture and fittings

The capital allowance rules that give some deduction for plant and machinery expenditure do not generally apply to the rental of residential property.

Where a property is let on a furnished basis there is an optional allowance towards the cost of furniture. HM Revenue & Customs (HMRC) allow a 10% deduction of the net rents to cover the wear and tear on furnishings such as carpets, beds, settees etc. Net rents means the rental income less certain costs incurred by you as landlord but which are normally incurred by the tenant - essentially council tax and water and sewage rates. There is no requirement to demonstrate actual expenditure on the replacement of these items.

As an alternative, where the property is let furnished, the landlord can claim a renewals allowance when furniture and fixtures such as baths etc are replaced. The allowance cannot cover the original cost of the item, nor can it include any improvement element in the replacement. This latter relief is also available on fixtures where a property is let unfurnished.

Capital gains on the sale of the property

When the property is sold there may be a liability to capital gains tax (CGT) on the disposal. The gain is calculated by deducting from the sale proceeds:

  • the original cost of purchase
  • the incidental costs of purchase and sale such as legal costs and estate agents’ fees
  • any improvement expenditure which is still reflected in the state of the property.

Where the property that is being sold has also qualified at some time during the ownership of the vendor as their only or main residence, part of the gain may be exempt. In addition a letting relief of up to £40,000 may be claimable. Note that this is generally available to anyone with a share in the property meaning a couple, even if married, could potentially qualify for relief up to £80,000.

Any gains above the annual exemption which is currently £10,100 will attract CGT at a rate of 18% (subject to any Budget changes on 22 June 2010).