As the use of technology increases, the need for in-person interaction appears to decrease. This is reflected in many sectors including that of financial services. Building societies may now be considering whether now is the time to rationalise the branch network.

There are many benefits of downsizing; reduced property costs, rates reductions, and a reduction in provision for dilapidations but how easily can a reduction in physical space be achieved?

It is a question of balancing the strategic needs of the building society with the legal and practical issues when disposing of excess space. If branches are held freehold, sale should be simple. However, where they are leasehold the following considerations are important:

  • How long has the lease got left?
  • If it is some time, can a surrender be agreed?
  • Is the building society permitted under the terms of the lease to assign or sublet? and
  • Are there any break options?

Where the lease is up for renewal under the Landlord and Tenant Act 1954 (the “Act”) the position can be more complex. For instance, a landlord who knows there is a decision to be made may press on with the litigation that goes hand in hand with the renewal process, knowing that if the tenant withdraws from that litigation it will still have to pay the landlord's costs. Equally, there are tactics that can be employed by a tenant to delay the process through the use of stays and a relaxed directions timetable.

What is crucial however is for tenants to plan ahead. Where they want to end their lease at the expiry of it, they may wish to gain certainty by serving notice under section 27 of the Act. They need to ensure they do not forget to exercise break options by the relevant date. Finally, they need to get right the tactics of their renewals under the Act. Failure to so can be a very costly exercise.