Preparing for a return to office working: Part 3

Planning a safe return to the office presents many challenges for landlords and occupiers. Here we explore fit out contract issues as offices are altered and reconfigured

29 June 2020

With preparations now gathering momentum for a return to office working of sorts, many are grappling with the complex issues that operating a safe - and lawful – working office environment presents. In a series of articles, experts from our Real Estate Sector Group are looking at some of these issues, offering practical and essential guidance.

In the first two articles we discussed some of the employment and data protection aspects of planning for a return to office working.

In this third article in the series, Matt Crossley, a Director in our construction team looks at ways in which landlords and occupiers can maximise their fit out contracts when it is time to press ‘go’ on reconfiguration plans.

Office Reconfiguration

Increased use of agile working, additional partitioning, and nightly deep-cleans are all measures being talked about when contemplating how office workers may begin to return to their offices as the lockdown eases. These are all short-term fixes. Longer-term measures are likely to follow, once landlords and occupiers understand more about the pandemic, how it is spread and what is effective in preventing an increase in the critical ‘R’ factor.

For some time, the fit out sector has been booming. Clearly that will have been affected by the pause in construction activity during the COVID-19 pandemic lockdown. However, as soon as landlords and occupiers are ready to begin reconfiguring their office space, we anticipate a continuation of that upward trend for fit out specialists.

Offices of the ‘near future’ will take on different configurations and design. The one constant however will be the need to factor in social distancing. Whatever the extent of the measures required, an ‘off the shelf’ building contract is unlikely to have the right tools included to help get a refurbishment project completed without significant issues such as overruns, delays, and business interruption. 

Landlords – building in flexibility to the scope

Landlords can be torn between covering the costs of delivering a ‘good to go’ space to Cat B standard or providing a blank canvas for tenants through a Cat A scope.

However, if planned from the outset, landlords can hedge their bets – engaging the fit out contractor to deliver a full Cat B specification (speculatively designed to second guess what tenants may want), but with a pre-agreed mechanism to omit the Cat B element. By adopting this approach from the outset (and designing the fit out accordingly), it can be possible to fix the consequences of omission which should be a straight reduction in cost and time commensurate with the extent of the scope being omitted (without needing to argue about lost profits or other costs). That way, landlords can make a start in their refurbishment whilst still seeking pre-lets and have the ability to stop the Cat B should a tenant not want to take on the landlord’s interior.

Landlords and Tenants – Playing well with others

The starting principle in construction contracts is that the contractor can expect exclusive occupation of the site for the duration of the works. However, office fit out projects seldom lend themselves to such clear cut circumstances – there are often employer-side teams (typically IT/AV) that have to begin installing equipment well before the fit out contractor has moved off site. Not only should this be signposted in the contract but employers should consider going further to oblige the contractor to work with those parties to ensure minimal interruption with each other’s works, to allow for access, welfare and delivery space, and even site storage and security. Be warned, though – for this mechanism to bite, in house teams will have to be as strictly monitored and managed as the contractor.

Sections / Phases / Milestones

Assuming the fit out works are more than superficial, it is likely that the proposed building contract already caters for the use of Sections. However, if we take a typical multi-floor office refurbishment project as an example, it is likely that certain systems affect all floors, so a neat ‘floor by floor’ Sectional completion regime isn’t quite fit for purpose. Nor does it allow for a phased approach to the works where the contractor may need to go back to a floor for whatever reason. Similarly, the need to keep the occupier business operational during the refurbishment may mean that a phased decant of staff is required in order to avoid interrupting key business needs. Again, a simple ‘black and white’ Sectional completion may not adequately cover this but a clearly drafted phasing/milestone mechanism can provide the flexibility required whilst keeping the contractor to a tightly controlled programme.

Third Party Agreements

Tenants will be under an obligation to carre out their fit out works in accordance with their pre-let arrangements, and there is likely to be a licence to alter dealing with the fit out works specifically. Landlords (especially institutional ones) also tend to have ‘tenant’s fit out guides’ and other documents that all tenants are expected to comply with. A well-drafted fit out building contract is likely to cover the majority of the standard requirements but employers should ensure that they are passing down all relevant obligations to their contractors. A useful tool in doing so – rather than a line-by-line ‘pass down’ which can end up in huge contracts – is to include all such documents as ‘third party agreements’, and including a provision requiring the contractor to adhere to them.

Likewise, a landlord carrying out refurbishment works as agreed with a pre-let tenant may find itself with tenant-specific requirements to carry out and again these should be passed down to the contractor as far as possible.

Physical conditions / adequacy of the existing building and services

‘Ground risk’ is clearly an unhelpful term for office fit out projects. However, careful consideration should be given to the extent of risk that an employer can place on a contractor to ensure that the intended fit out works can be incorporated into the existing building. Put another way, employers need to decide who is best placed to take the risk of the adequacy of the existing structure to ‘support’ the fit out, including whether the existing services are ‘up to the job’ of integrating with the newer systems. Clumsy drafting can lead to an inappropriately severe transfer of risk. In the current climate a contractor is unlikely to accept this without being paid – and afforded the additional time – to carry out extensive investigative surveys. On the other hand, if the clause is too narrowly drafted, contractors may easily find themselves with entitlements to additional time and money where employers had been anticipating a ‘fixed’ price.

If you would like any further information on any of the issues raised in this article or to discuss any other construction or engineering related issues in the context of real estate, please contact Matt Crossley or Marcus Harling, a partner in the construction team, who will be happy to assist.

Our COVID-19 Support Hub includes a collection of helpful resources in relation to both Construction and other Real Estate issues.

If you need assistance in relation to any other area of law in connection with the use and occupation of your office space, whether you are a landlord or a tenant, please contact Richard Clark, head of our Real Estate Sector Group.

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