Charity workspaces—what is the future of the office in the Sector and what should charities be thinking about?

This has been most starkly apparent in the context of offices. The widespread rise of working from home has led to many charities undertaking a fundamental reappraisal of the amount of space they need, and some are considering whether they need any office space. When we are working with clients planning head office moves, they are typically considering space that is 30-50% smaller than they were previously occupying. Charities are also much more actively looking to engineer lease termination events such as serving break clauses where available and trying to agree surrenders where not. Where charities are left with surplus space they are looking for ways to turn it to account, typically by letting to or sharing with other charities. The concept of co-location as a solution for charities wanting office space is being examined again as a possible solution. Whilst all these legal issues need to be worked through as part of a charity’s new estate strategy, it is becoming clear that culture and people issues within the organisation are just as important and should be considered in the round. 

Break clauses are a key tool for terminating a lease that is now surplus to requirements. However, making them work requires a precise understanding of which leases in a charity’s portfolio have breaks and the precise terms of the clause. This is particularly the case in respect of the notice period and the conditions attached to the exercise of the break. In so far as the notice period is concerned, time is invariably “of the essence” in break clauses, meaning that if short notice is given the break is invariably ineffective and the lease continues. Older break clauses often contain potentially onerous conditions, such as requiring compliance with the repairing covenant in the lease as at the break date; in a full repairing lease this is very onerous (as the most minor lack of repair creates potential non-compliance), and could again lead to the break clause not taking effect. When negotiating new leases, charity tenants should not accept conditions beyond payment of the headline rent and giving up occupation. 

The other legal route for ending a lease before the end of the contractual term is to agree a surrender with the landlord. The landlord is under no obligation to accept a surrender, and will want a deal reached on rent and dilapidations. Landlords will tend to be more interested in accepting a surrender where the property has development potential or is currently under rented. We have seen new instances in the last 18 months of landlords agreeing surrenders of leases on more favourable terms than were originally anticipated, so it is worth considering making a proposal. Professional advice should always be taken in this situation, particularly as a surrender of a lease by a charity constitutes a disposal of land requiring compliance with section 117 of the Charities Act 2011. 

Where charities have surplus office space but can’t immediately bring the lease to an end they are typically looking for ways to generate income or otherwise use it productively. Typically subletting or sharing of occupation are the main options being considered. Legally these are two quite different things; subletting is the grant of a new interest in land with exclusive possession to a subtenant, whereas genuine sharing of occupation is for example granting a right to use a certain number of otherwise unspecified desks within an office. 

Its always important to consider the existing lease when planning to sublet or share occupation. Very few leases will place no constraints on a tenant’s ability to sublet, so it is important to understand what these are. Subletting will generally require landlord’s consent and often has to be at no less than market rent; the landlord may need to approve the form of sublease, and will always require its professional fees to be paid, which is a cost that has to be budgeted into the project. 

Sharing of occupation is permitted as standard in most commercial leases between the tenant and a group company. One approach when negotiating leases on behalf of charities is look to build in a right to share occupation with other charities or social enterprises. Most landlords will agree this subject to the standard stipulation that no relationship of landlord and tenant is created, and it gives tenant’s much more flexibility. However, it is important not to fall into the trap of calling something a licence for commercial expediency where as a matter of fact exclusive possession is being given. 

Based on what we have seen in the market over the last two years, it is important that charities with surplus space do not assume that it will be easy to let, and that they build capacity within the organisation to manage relationships with the subtenants/occupiers. It is clear that whilst demand for office space is starting to pick up again, particularly in London, the strongest demand is for the best quality space in the most sustainable buildings; secondary office space that hasn’t been invested in may only be lettable at a very low rent if at all. It’s also important to think about the building as a whole and not just the space to be let. We had one proposed subletting of a fourth floor space in a building to a charity with a number of wheelchair users. The subletting did not happen because the lift in the building didn’t work and the freeholder couldn’t give any certainty as to when it would be repaired. The other advice we would give for charities looking to sublet or share space is to make sure they have a robust and easy to use IT solution, as deals can also fall over on the length of time needed to get new cables and servers into a building. 

Co-location refers to joint ownership and occupation of a building or a space within it by one or more charities. It is a model that attracts periodic interest within the sector as a way of sharing property costs and promoting co-working between organisations with a shared mission. We have seen over time that “democratic” co-location, with shared decision making between the organisations, is very difficult to make work, and requires a real buy-in from the participating charities. We are advising on one such project at the moment, where two women’s’ welfare charities are taking a joint 5 year lease from a local authority for the provision of services. The time limited nature of the commitment, particularly as the building in question is to be redeveloped at the end of the term, is de-risking the project and making it more likely to succeed. Most shared occupation arrangements though are based around a structure where one party takes the lead on building management decisions, and the others are tenants or licensees. The provision of office and co-working spaces for charities can be charitable in its own right under the head of improving the efficiency and effectiveness of the sector. 

When charities are deciding on their future property strategies the people issues also need to be thought about, in terms of whether a new office will be the right fit for both the organisation and its staff, who may have conflicting needs/requirements. In our experience the charity sector is not really pushing its staff to return to the office, and it feels like flexible/hybrid working is here to stay. Not tying employment to the ability of staff to be in a particular office four or five days a week is having some positive effects for charitie's staffing decisions, in particular their ability to recruit and retain staff from a wider geographic pool. However onboarding and mentoring new staff are among the significant challenges in organisations where most team members are not in the same space most of the time and requires significant investment in the technology to make flexible working work, and investment of time by senior staff. If there is more of a return to office based working than up to now, some charities may find they have downsized too far to provide good quality accommodation for all staff on at least some days per week, and may end up looking to take additional space. 

There are no easy answers for charities setting their property strategies in a world that has changed so much since 2020. Trustees will need to keep thinking very hard about balancing finances, the needs of the organisation and the needs of staff in order to find the right balance.