Leased Offices vs. Licensed Spaces: Key Differences for Renting Offices in London
The terms ‘lease’ and ‘license’ are broad terms that can be easily confused in commercial leasing – but they have different meanings and implications for your business.
In this guide, we’ll cover the key differences between a conventional office lease and a license to occupy, and the top things you should consider when looking for a new office space in London.
What is a lease?
A conventional office lease is a legal relationship between a business and a property owner (landlord). The business will have a contractual agreement which lays out the terms on which they can rent the space from the landlord, and the rights they have to the property.
A lease agreement allows tenants to have exclusive occupation of the property for a specified period. For a conventional office lease, this is often for an initial 5 years, but can vary up to 20 or 30 years.
The benefits of leasing an office space include:
Exclusive occupation: leases give their tenants exclusive occupation of the property. This means that with their landlord’s approval, companies have the right to make changes to the space, such as decorating to bring it in line with the company brand.
Better stability: a lease is taken out for long-term occupancy, providing the business with better stability – which can be particularly useful in uncertain rental markets – and security for staff.
Lower long-term costs: a conventional office lease may have lower costs over a long period (e.g. 5 years or more), compared to the costs of licensing a similarly-sized space from a serviced office provider. Additionally, landlords will usually give their leaseholders the right to offer licenses to third-party occupiers within their office – further reducing their costs.
However, having a conventional office lease can incur more admin as the tenant will be responsible for managing the suppliers and maintaining the upkeep of the space. There will also be additional upfront costs, such as fitting out the office, before it’s ready to be occupied.
What is a license?
Unlike a lease, a license does not grant a tenant exclusive possession of a space. Instead, a license allows the tenant to occupy the space – usually alongside other tenants.
It’s common for businesses in the flexspace sector (e.g. coworking spaces and serviced offices) to operate on a license. Serviced office providers will usually have their own long-term lease agreement with the building owner, then provide an allocated space within the building on a license. Licences are normally billed per desk or per space, per month.
Licenses are commonly used for short-term needs, such as a month-to-month tenancy. The benefits of licensed office space include:
More flexibility: unlike a lease, a license to occupy does not necessarily need to have a fixed term. This makes it suitable for companies who need to maintain flexibility over their office space and location, making it a popular option for start-ups and SMEs.
Collaborative environments: licensed offices are often found in buildings run by serviced office providers, often with shared communal facilities.These environments can create great networking and collaborative opportunities with professionals from other brands and industries.
Hassle-free working: licensing an office from a service provider means that everything that’s required for a working office space will come included. This includes things like furniture and refreshments, in addition to fully-serviced facilities (e.g. utilities, telecomms and cleaning).
While the flexibility of a license is particularly appealing, the terms are generally much shorter than a lease and there is no automatic right of renewal. Additionally, companies looking to firmly establish their brand identity in their office space may struggle if they operate on a license, as they are unlikely to be allowed to carry out major alterations.
Tips for choosing between a lease and a license
If you’re not sure whether to go for a conventional office lease or a license to occupy, keep the following things in mind:
1. Company size
If your company is particularly large, you’ll need an office space big enough to accommodate everyone, including working space, private meeting rooms and communal facilities. If this is the case, a leased office may be more suitable.
On the other hand, smaller teams generally have a license to occupy in a serviced office, sharing communal facilities with other companies.
2. Changing needs
Change is essential to the success of a business, and when change happens, your office space will need to adapt accordingly.
For example, if your company is going through a significant period of growth, you may outgrow your workspace. In this case, the flexibility provided by a license to occupy, rather than a more rigid conventional office lease, may be more valuable.
3. Working practices
The way your business operates will need to be considered when choosing between a lease agreement and a license. For example:
Do you have (or are looking to implement) a hybrid workplace, where employees split their time between a central office and working remotely? If so, licensing an office that’s shared with another company will ensure you’re only paying rent for the days you use the office space.
Are meetings with clients a regular occurrence in your calendar? A lease agreement gives you permission to re-format the space to your exact needs, which could help make a more positive impression on your clients.
4. Cash flow and long-term budgeting
Your company finances will play a significant role in the decision between having a conventional office lease and a license.
If you choose an office on a lease agreement, you’ll likely need to pay upfront fit-out costs – which can vary significantly, spending on the size of your business and the facilities and furnishings you’ll need – so a cash flow in the early stages will be important. However, some property owners may provide a rent reduction if you’re willing to sign on for a long period, so if you’re confident in your company finances, having a conventional office lease might cost you less in the long term.
Licensing costs are more transparent and are usually advertised at an all-inclusive monthly fee. If the company is still starting out and you’re still establishing your overheads, a license may be a better option as there will be less upfront costs and less admin required.
Running your own office space will require a lot of energy and resources. Consider the services your new office needs to have, such as IT and telecomms, on-site reception and security, office furnishings, and property management. If you don’t currently have an agreement with any services and you would like your new office to have everything included, then a serviced office will likely be most suitable.
Also consider the staff available to you if moving furniture is required. Do you have enough staff who can provide practical support with relocation, or will you need to pay to outsource this?
Looking to rent an office in London? Space32 can help.
We’re here to help you find an office worth leaving the house for. Our expert team will help you find the perfect space to meet your business needs and negotiate all the terms to get you settled in smoothly. Take a look at our available spaces or get in touch at email@example.com.