Key Considerations for Flex Office Providers When Negotiating a Lease with a Commercial Landlord

The demand for flexible office space continues to rise as businesses seek adaptable, cost-effective solutions to accommodate hybrid working models and fluctuating workforce needs. Following on from our occupier’s survey we found that 44% of businesses surveyed are looking to supplement their existing space by incorporating some form of flex space into their portfolios. At Irwin Mitchell we have several clients in the flexible office sector, and we predominantly see these clients taking on leases within buildings to run their businesses rather than purchasing such buildings given the considerable amount of capital needed to fund such purchases. For flex office providers, securing the right lease terms is crucial to ensuring both profitability and operational success. 

Unlike traditional office occupiers, flex office providers operate on short-term, high-turnover occupancy models. This means that the terms they negotiate with landlords must allow for maximum agility while mitigating risks associated with long-term commitments. Below, we outline the key factors that flex office providers should consider when entering into lease negotiations with commercial landlords.

1. Lease Term and Flexibility

The lease duration is a fundamental consideration for any flex office provider. While landlords typically prefer long-term leases to secure stable income, flex office operators require a balance between commitment and adaptability. When negotiating lease terms:

• Break clauses should be negotiated to allow the provider to exit the lease early if market conditions change or if the location underperforms.
• Renewal options should be included to provide continuity in successful locations.
• Tenant-friendly alienation provisions (such as assignment and subletting rights) can provide an exit strategy in case the business model needs to shift.

Ensuring these elements are embedded in the lease agreement can protect a flex office provider from being locked into an unviable property for too long.

2. Permitted Use and Operational Flexibility

Most standard office leases restrict the way a property can be used. However, flex office operators require broad permitted-use clauses that allow them to provide co-working spaces, private offices, meeting rooms, event spaces, and ancillary services.

Key negotiation points include:

• Ensuring the lease expressly permits short-term subletting or licensing of space to multiple occupiers.
•  Avoiding restrictions on changing the office layout or installing necessary infrastructure, such as high-speed broadband and meeting room partitions.
• Clarifying exclusivity rights, preventing landlords from leasing to competing flex space operators in the same building.

A carefully worded permitted use clause will provide the operational freedom needed to maximise occupancy rates and revenue.

3. Rent Structure and Service Charges

Flex office providers need predictable cost structures to maintain profitability, as revenue is generated from a fluctuating tenant base. Key considerations when negotiating rent include: 

• Turnover rent options, where rent is linked to revenue, can help align landlord and tenant interests.
•  Stepped or phased rent structures that allow the business time to build occupancy before full rent kicks in.
• Caps on service charges to avoid unpredictable increases, as flex office providers typically pay a share of a building’s running costs.

Since flex office operators depend on a competitive pricing model to attract occupiers, avoiding rigid and high-cost rental structures is essential.

4. Fit-Out, Repairs, and Dilapidations

Unlike traditional office tenants, flex space providers often need to invest significantly in fit-outs to create attractive, functional workspaces. When negotiating lease terms, it is important to establish:

• Landlord contributions toward fit-out costs, particularly where upgrades enhance the building’s value.
•  Responsibility for repairs, ensuring that obligations to maintain the premises (particularly common areas) do not fall disproportionately on the flex provider.
• Dilapidations liability, which can be costly at lease end if the landlord demands full reinstatement of the premises. A “no reinstatement” clause should be sought to avoid excessive exit costs.

These negotiations can significantly impact the provider’s bottom line, making early discussions on these issues crucial.

5. Security of Tenure 

Flex office providers should carefully consider their rights under the Landlord and Tenant Act 1954. While many landlords insist on lease exclusions from statutory renewal rights, some providers may prefer security of tenure in successful locations.

Understanding and negotiating these terms ensures that a flex provider does not face unexpected upheavals that could impact their business continuity.

6. Branding, Signage, and Exclusivity

Branding is key to attracting tenants in the flex office market. However, landlords often restrict external signage and branding rights. Negotiating clear branding provisions can ensure:

• The right to display prominent signage both externally and within the building.
• Marketing rights to use the building’s address and features in advertising materials.
• Restrictions on landlords leasing space to direct competitors, preserving the unique appeal of the flex operator’s offering.

These rights are essential for differentiation in a competitive market and should be addressed from the outset.

7. Exit Strategy and Early Termination

Given the fast-changing nature of the flexible office sector, having a clear exit strategy is critical. Beyond break clauses, providers should ensure:

• The right to assign the lease or sublet the entire space to another operator if the business needs to pivot.
• The ability to negotiate an early surrender agreement, potentially with a pre-agreed compensation structure for the landlord.
• A clear handover process to avoid disputes over dilapidations or outstanding obligations.

A well-structured exit plan provides financial protection and operational resilience.

Conclusion

Securing the right lease terms is fundamental to the success of a flex office provider. The key to a successful negotiation is balancing landlord expectations with the flexibility required to operate a dynamic, multi-occupancy business model.

By proactively addressing issues such as permitted use, rent structures, repair obligations, branding, and exit strategies, flex office operators can create sustainable, profitable arrangements that support their long-term growth.

At Irwin Mitchell, we have extensive experience advising flex office providers on negotiating leases that align with their commercial objectives. If you need guidance on structuring lease agreements or navigating complex negotiations, please get in touch with our real estate team.

This article was first published in Estates Gazette