Acquiring a new office may seem like a relatively simple task, but there are various considerations and pitfalls to avoid. You will probably know roughly how large an office you need and where you want to be located, but finding and arranging the right lease can be more complicated.
There are two broad kinds of lease - the Conventional lease and Serviced Offices & Executive Suites. There are a number of factors that will determine which is right for you:

Serviced offices & executive suites

They are a relatively innovative approach to office leasing. They provide immediately available and fully fitted turnkey offices, often with telephone answering and secretarial services included. They can be ideal if you need to move in within two months or require flexible lease terms.

Advantages of serviced offices & executive suites include:

- Quick, easy possession, often within 24 hours of viewing
- Short periods of commitment - generally three months
- Expansion possible within the buildings
- Limited need for rental deposits or bank guarantees
- No capital outlay
- No dilapidations liability at the end of the lease
- Ease of pinpointing buildings, through brokers such as SME Property Search

Disadvantages of renting a serviced office, executive suite include:

- A limited pool of supply, as serviced offices represent a relatively small proportion of the total office market
- Higher cost of flexibility
- High telephony charges in some centres
- Lack of supply of "funky" style offices
- Some buildings are branded as business centres
Renting a serviced office & executive suite

SME Property runs a full listing service of serviced offices throughout the World. You can use this to find suitable premises in the city you're interested in and arrange viewings. The all-inclusive cost for serviced offices varies from building to building, but will range from around £200 (US$300) per person per month to £1,200 (US$1,800) per person per month. The rent is always negotiable but generally includes taxes, service charges, electricity, heating, furniture, building insurance, telephone handsets, telephone system and maintenance. Telephone answering services and shared meeting rooms are also often available.
After you have found the right office, the building manager will provide a simple licence agreement that can be signed with minimal legal advice. As soon as the licence is signed and the first month's rent paid, you can move into your office.

Conventional leases

Conventional offices are likely to be more suitable when your reaches a certain size (say 30 people) and you are fairly certain of your likely growth over the next two to three years. Although there will substantial initial capital costs in taking a conventional lease, your monthly outgoings may be lower.

Advantages of a conventional lease include:

- Security of tenure - commercial leases give the tenant the right to remain in a building indefinitely in most circumstances
- Transparent pricing of property and other associated costs
- Space can be personalised to suit a specific companies culture
- Greater variety of buildings in terms of style and locations

Disadvantages of a conventional lease include:

- Pinpointing, agreeing terms, refurbishing and fitting out can take several months and requires a substantial capital outlay
- Minimum lease commitments are generally between three and 15 years, so expansion can be problematic
- Expansion space is unlikely within the same building.
- Long rental deposits are required for new or non-profitable companies
- Capital outlay will be required at the end of the lease to pay for dilapidation’s liability

Renting a conventional lease office

Finding the right building and arranging a conventional lease can be a lengthy task, but the long-term benefits can make it worth the effort.
To help find the right building, it's often prudent to appoint an agent to assist in your search and negotiate the main terms of your lease. The Heads of Terms are then passed to your lawyer who draws up the documentation.
The basic rent on a conventional lease will range from £10.00 (US$15.00) to £65.00 (US$100.00 per square foot (psf), depending on location and facilities, and subject to upwards-only rent reviews at the end of each fifth year. Unlike a serviced office, where all the set-up and ongoing costs are rolled into one monthly charge, other running costs must be considered:
* Local taxes / Business rates range from £2.00 (US$3.00) to £13.00 (US$19.50) psf. The level is set by the local authority, based on the rental value of your office multiplied by a percentage set by the national government. You may be able to reduce your liability by instructing an advisor to appeal your liability.

* Service charges are typically around £4.00 (US$6.00) to £7.50 (US$11.00) psf. This is levied by the building owner or his managing agent, and includes the basic running costs of the building such as lift maintenance and the cleaning and maintenance of common parts.

* Buildings insurance costs around £1.00 (US$1.50) psf

As well as running costs, taking a conventional lease will include a significant initial outlay. Costs will include:

* Set-up costs for fitting out the office. These can range from £5.00 (US$7.50) to £25.00 (US$37.50) psf, depending on the facilities and standards you demand. A fit-out contractor will co-ordinate all works necessary in your new office from arranging partitioning and cabling to purchasing furniture.

* Agent / Broker fees. In some markets around the world (including the UK) If you appoint an agent to help locate premises, expect to pay around 10% of one year's rental. The benefits of are substantial, however. You are given improved access to the market, the agent can negotiate your lease terms from a position of strength based on good knowledge of the market, and the agent can screen unsuitable properties and save you considerable time. You can decide whether you want to work with several agents and only pay the agent who introduces the property you acquire or you can appoint a sole agent to actively search for property on your behalf.

* Legal fees, including conveyancing fees, stamp duty, local authority searches and bank transfer fees. The solicitor is necessary to assist in the preparation of all lease documentation - an increasingly complex job as the majority of leases now run to more than fifty pages. The legislation changes frequently therefore it is important to choose a lawyer experienced in this field.

* Deposits may be required from start-up companies with little or no trading history, as these are perceived as highly risky by landlords. As a rule of thumb, if annual profits are less than three times the sum of the rent and service charge, consistently over the last three years, your landlord will demand a deposit equal to between three and 18 months of the total rent. This should be held in an ESCROW account with interest to be paid to the tenant. The landlord may also accept a bank guarantee on a similar basis, or occasionally insurance, which would cost around 10% of the rent.

As well as costs, there is a long list of other factors you will have to consider. These include:
* Incentives. As the current market is so strong, the range of incentives on offer from landlords has vastly reduced. Typical devices to demand as part of your negotiation could include rent free periods (up to 24 months have been granted in the past) and capital contributions to pay for fit-out. Incentives reflect the state of the market but should be seen in the context of the lease.

* Timing. Although in theory it is possible to occupy a building within two weeks it is prudent to allow three to four months from initialising the search to taking occupation. This covers searching and pinpointing locations and buildings, initial negotiation of lease terms and the drafting of all documentation.

* Length of lease. Most landlords prefer long leases up to 15 years as generally the longer the lease the higher the value of the landlord's investment. However they may accept much shorter terms from around three years in certain circumstances. As a rule of thumb, the more prime the office, the longer the lease term the landlord is likely to demand. It is sometimes possible to sub-lease accommodation from an occupier who no longer requires the space - in this instance, shorter terms are often possible.

* Rent reviews. The majority of leases over three years in length will have a provision to increase the rent in line with the market conditions at pre-determined points through the lease. The standard clause allows for upwards-only rent review provision at five yearly intervals. This means that should the market rent rise, so will the rent payable. However if the market rent falls the rent payable remains the same, this is standard in the majority of leases and accentuates the need for flexible lease terms. In the last major downturn in the property market at the end of the 1980's most occupiers were left with enormous rental liabilities, some of which remain today. It is important that your solicitor and surveyor check the rent review assumptions as some wording will lead to sudden big increases.

* Break options. It may be possible to negotiate break clauses at set points throughout your lease, where the occupier can serve notice on the landlord to surrender their lease. These are more difficult to negotiate in strong market conditions. It is vital that the break clause is not conditional on full performance of the lease as this gives the landlord the power to dispute the break easily. Take advice from both your surveyor and solicitor.

* Repair obligations. The vast majority of leases on commercial premises are let on Full Repairing and Insuring terms, which place the onus and cost of all upkeep, decoration and repairs on the tenant. At the end of the lease a final Schedule of Dilapidations (breaches of covenant to repair a building contained in the lease) is served on the tenant. This contains the alleged breaches of covenant and details of remedial works required together with a claim for damages. This will include not only the cost of remedial works, but also the loss of rent, service charges, rates, professional fees and VAT for the period during which the property cannot be occupied as a result of the disrepair. It often results in disputes and significant capital expenditure at the lease end and therefore should be considered in setting expenditure at the outset.

* References. Most landlords will require three references from your bank, accountant, solicitor or past landlord. It is useful to have these prepared so they do not delay the process.

* The Landlord & Tenant Act (UK ONLY). In some instances the landlord may be unwilling to grant an occupier Security of Tenure, which is the implied right that the occupier has to remain in the building after their lease has expired. In the majority of cases this should not cause the occupier any concern as long as they are prepared to move out at their lease end. Even if your lease is "outside" the Security of Tenure provisions of the Landlord & Tenant Act, the tenant has the right to remain until the lease ends. If the lease is "inside" the Act, the tenant is granted compensation, in some circumstances, if the landlord wants possession at the lease end.

* Alienation (UK ONLY) Ensure that you have the right to assign or sub-let your lease. However, even when you have assigned or sub-let, it is very likely you will still be liable for the rent until the end of the lease. Therefore it is essential that you check the financial strength of your sub-leasee.

* VAT (UK ONLY) Most leases enable landlords to charge VAT on the rent at anytime during the lease, the only important implications are if you are not VAT registered.