Land Securities’ flexible property solution, LandFlex, launched this month, claims to offer a range of services and options to fit in with their customers’ needs. Susie Gray reports
The code of practice for commercial leases requires that a landlord offers priced alternatives to a tenant on various aspects of the lease, such as its term, rent review details and other options such as break clauses. The main purpose is to create more balanced landlord/tenant negotiations and thereby dilute the potentially adversarial nature of the relationship.
However, even in today’s market, where demand from occupiers has weakened, there is little evidence yet of changes in attitude. The balance of power may have shifted but no significant change in lease structures is occurring yet. Landlords are giving away greater incentives but are relying on the year-five open-market rent review to support their asset values. Lease lengths have shortened and break clauses are appearing, but only in certain circumstances.
Against this backdrop, Land Securities has undertaken a complete review of its approach to providing property solutions and recognises the need to offer its tenants – from now on, its customers – a choice of solutions. At the heart of this new approach lies LandFlex, which is being launched this month and serves as a model of how things could operate under the code of practice.
A whole new approach
LandFlex represents a whole new approach to leasing for the company. From now on, in designated buildings, LandSec will be offering its customers a choice of lease structures, space configuration and service levels along with certainty of costs.
The product allows leases of between six months and 10 years to be supplemented by options to cancel or extend. Customers will also have the option to reserve space which they may need in future in the same building. Alternatively, a customer can take several different leases in the same building to create a lease profile that closely matches its business plan, department by department if necessary.
Nasty shocks removed
To assist customers in planning their expenditure, the nasty shocks have been taken out of the charging system. Customers will pay an all-inclusive accommodation charge that will not be subject to open-market reviews during the term of the lease agreement or dilapidations at the end. Instead, the charge will be reviewed annually in line with the retail price index, both upwards and downwards. This accommodation charge includes rent, buildings insurance, maintenance, repair, operation and cleaning of all the building systems, structures and finishes, security and utilities, not only for the common parts but for the demised areas as well.
In traditional leasing situations, a company could take short-term space but would still need to write off its initial fit-out charges. With LandFlex, however, the space will be finished to include power and IT cabling as well as carpets and security. Partitioning and furniture can also be provided and included within the accommodation charge. LandFlex customers therefore have the option to move in with virtually no capital expenditure but at an increased rent.
Furthermore, LandFlex’s recovery of the full cost of the fit-out will not be sought over the term of each customer’s lease, but across the expected life of the fittings themselves. In this way, a customer who is there only for the short term will not be penalised for the installation of fixtures or their removal.
LandFlex will provide unbranded business club areas managed by LandFlex staff, which are available to all customers. Some will be free to use, while others are charged on a pay-as-you-use basis. These will include meeting rooms that vary in terms of size and decor. Special features will include video conferencing facilities, private offices, breakout and coffee areas and touchdown desks.
Such areas will enable LandFlex customers to reduce their space requirement and therefore reduce their fixed overheads. Well-managed and generously sized reception and back-of-house areas, such as post rooms, will further reduce the area for which a customer needs to pay. Furthermore, customers will not end up paying for these spaces through hidden service charges. The cost of these areas will be recovered entirely through the revenue they generate. Nor will they be expensive. If customers choose to have their own meeting rooms and breakout spaces, they can, so the prices have to be competitive.
Increasingly, to attract and retain the best staff, companies are providing catering, fitness and childcare. Such amenities take time to set up and manage and often take up valuable space. LandFlex will provide them where possible, with the aim of saving customers both time and money.
Using the experience of Land Securities Trillium, service providers were chosen to manage the extra services. Mitie, working alongside Compass, will provide building services and catering staff. LandFlex-employed duty managers and a general manager will oversee the operation of the buildings on site throughout the day. Core services will be available from 7am to 9pm but access to the building will be available 24 hours a day. IT-managed services will be provided by Pandi, which undertook the cabling design and installation for JP Morgan Chase, Freshfields and GSK. Avaya cables and state-of-the-art Mitel telecoms systems are used.
Simple lease documents
In conjunction with Nabarro Nathanson, LandFlex has produced a new standard in lease documentation. Just a few pages long, the lease – which will be outside the security of tenure provisions of the Landlord and Tenant Act – avoids jargon, replacing it with plain English terms such as “we” and “you”, “cancellation” and “expansion”. The main terms – duration, accommodation charge and options – are separated from explanations and details so that they can be easily read and understood. Legally required details are to the point and contained at the end of the document. The occupier has very few obligations and there is no requirement for the provision of repair clauses, rent review clauses or authorised guarantee agreements (AGAs). Because LandSec offers options to cancel, extend or expand the leases to provide flexibility, the alienation provisions are limited.
This simple lease should do much to reduce the time it takes to agree and complete a deal. It should also reduce the associated legal fees for both parties.
How can LandSec justify the costs of the LandFlex approach to leasing office space? Because it owns the freeholds of LandFlex buildings free of property-specific debt, it is free to choose how to let them and to whom. Instead of insisting on deals that are designed to drive asset value, it is able to build a business across the LandFlex portfolio that will generate a strong cash flow.
Buying power
In addition, because of its buying power – some £150m of services turnover pa – it hopes that its service costs will be competitive.
This is not an attempt to attract occupiers in a difficult market or emulate the serviced office arena. It represents LandSec’s long-term investment in a new and flexible approach to customers and one that is in keeping with the demands of the lease code.
Susie Gray is LandFlex operations director at Land Securities
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Where and when will LandFlex be available? |
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Two London buildings totalling nearly 540,000 sq ft (50,000m2) are under refurbishment specifically for LandFlex. Empress State at Earl’s Court will offer around 430,000 sq ft (40,000m2) of office accommodation over 30 floors as well as restaurants, a fitness centre, shops and meeting rooms. A revolving top floor is also available for use as an informal meeting space during the day and can be booked for use as a bar or for presentations or corporate events in the evenings. The refurbishment is at an advanced stage and will be ready next July. The refurbishment of 7 Soho Square will be complete in January. As well as 53,800 sq ft of offices, a fully fitted suite of conference rooms, informal meeting rooms, video conferencing facilities and a coffee bar will be provided. Customers of both buildings will be able to use the business club in either building to hold meetings. Styling The LandFlex offer and buildings have to appeal to a variety of customers. Architects and workspace consultants used to advising occupiers were employed to get the correct layout in the business club areas, while the style has been carefully set so as not to be either too brash for some or too grey for others. Customers will recognise that they are in a LandFlex building but – unlike serviced offices – there will be no signage announcing LandSec’s presence. The customers’ brands must come first if the concept is to work. |
