The rent discussions are said to focus on areas such as payment frequency and break clause terms.

Law firms across London are negotiating with their landlords about ways to ease the rent burden they face during the lockdown, according to several real estate agents.

The most common areas of discussion are on changing the frequency of payments, renegotiating break clauses, and foregoing certain services in exchange for cheaper rent, according to the people, all of whom held senior roles at major real estate companies.

Five practitioners said the biggest trend they have been seeing from law firms was to pay rent monthly rather than quarterly due to the crisis. One of them explained that this solution is an advantage to landlords, but also to tenants in an uncertain environment in which they would rather "pay a little bit every month and have a better picture of their finances than pay a big chunk quarterly, which could trigger some financial worries."

Three of the practitioners said they were also seeing landlords and tenants working together to "reshape the lease in regards to their break clause", while some are "trading office benefits and services for cheaper or free rent" for up to six months.

One of them said: "I've heard that some law firms occupying offices offering fancier services or building benefits that are not a necessity such as pools, gyms, you name it, have been telling their landlords they won't use a specific service or benefit anymore in exchange for three to six months of cheaper or free rent."

Another practitioner also said he has seen some law firms asking for 3-month rent deferrals from their landlords, but expects conversations about rent payments to deepen in the next quarter.

"In a worst case scenario, some could turn to their landlords and say 'We can't pay rent right now'"

He said: "Some firms might struggle financially in the next quarter more than they have been so far, so at that point that discussions with their landlords might become more difficult. In a worst case scenario, some could turn to their landlords and say 'We can't pay rent right now' but law firms tend to have some capital so, who knows?"

The conversations are significant given that after salary costs rent payments are usually law firms' second biggest financial commitment. For large firms the sums involved are particularly large. Allen & Overy, for example, spent £101 million on lease payments for its offices at One Bishops Square in the financial year to April 2019, according to the firm's latest Limited Liability Partnership accounts.

Moves to lessen rent payments come against a backdrop of cost cutting throughout the commercial legal industry as the lockdown continues to lessen the flow of transactional work. Many top firms have furloughed staff, reduced and delayed partner profit distributions and offered reduced hours to staff.

One property practitioner said: "Right now, cash flow is king. We've started seeing some law firms, and other businesses, having conversations with their landlords about lease restructurings and payment arrangements".

Future Office Arrangements

The pandemic lockdown has caused some firms to delay office moves and to reconsider what they will be looking for in office premises, the practitioners said.

Earlier this month, two people in the property sector told Law.com International that Freshfields Bruckhaus Deringer has had to delay its office move to 100 Bishopsgate, which was meant to be completed by August. Another practitioner said that Cooley has had to delay its move to 22 Bishopsgate. All three people named fit-out and accessibility to new premises issues as the main factors in those delays.

All eight agents said that law firms that were on the hunt for new office space before the lockdown started are still searching, and none has seen a deal fall through yet.

One of them said that some firms who were due to move premises in the next few months have "asked for a short-term lease extension" with their current landlords as it is currently "almost impossible to access any offices", or because some firms "can't commit to a new office yet".

Several added that, for now, the priority is on determining how and when to let fee-earners and staff members return to offices. One practitioner said they wouldn't expect more than 20% of a firm's workforce to return to premises within the next couple of months, and not more than 30% before 2021.

"I would expect some firms to tell all their people to work from home full-time until 2021."

He added: "We will all operate in a fragile environment for a while, so I can definitely see more flexibility in working from home in the market. It took a while for law firms to institutionalise that, but the circumstances made it inevitable and it has worked out really well for them so far.

"I would not be surprised if they followed in the footsteps of tech giants like Twitter, which offered its people the option to work from home until 2021. In fact, I would expect some firms to tell all their people to work from home full-time until 2021."

New Guidelines

Several others mentioned that law firms have been looking at ways to accommodate their premises to social distancing guidelines. Two practitioners mentioned that one-way offices and one-way fire escapes, and changing open-plan settings would be a priority for many firms.

Another real estate practitioner added that lift protocols are likely to change, as well as air filtration systems. He also said he would expect some firms to implement cubicles, and temperature screenings at their entrance.

In the long term, one of the practitioners said he expected law firms to use technology at a greater level and institutionalise working from home so that "the office will be not be an obligation but a choice."

He added: "This outbreak has proved that working from home en masse is working well for most businesses and for law firms. I think the way forward for law firms is to create a strong digital response and support their lawyers with more technology. And now, I think a lot of people will want to work in an office if they know they can get some kind of benefit from actually going to the office.

"Why would someone want to commute two or more hours a day, not spend time with their family, to work in an environment that does not offer much? Millennials especially value quality of life over money, if working from home works well for them and the office is not nice, why would they want to go back?"

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