Looking to set up a science park or innovation centre?
First seen in Cambridge in the early 1970’s, and then spreading to many research-intensive universities in the 1980’s, science and technology parks and innovation centres remain a successful way of linking a university with its surrounding business community and introducing students to enterprise skills.
Whether you’re looking at re-purposing an existing building, or the construction of bespoke facilities, dealing with contracts, leases, and other legally binding agreements will always be part of the process.
At first glance these documents appear to serve little purpose other than to satisfy internal compliance procedures – but they are important not only to enable parties to manage risk, but also to govern the relationship between stakeholders.
Joint Ventures and SPVs
Whether you are re-purposing an older pre-loved building or creating a sparkling new edifice, or you have the luxury of an expanding, dedicated campus, science and technology parks are subject to the normal commercial risks of any business.
In order to separate that commercial risk from charitable entities such as universities, companies known as special purpose vehicles (SPV’s) can be created to hold the park or building. This makes it easier to comply with current guidance from the Office for Students, successor to HEFCE, and charity laws. They can also enable simpler management and document signature processes, and facilitate partnering with third parties and the local community.
Besides the synergy of being near the university, the location of your site needs to take into account a number of requirements from easy access to infrastructure, from including ease of access, infrastructure, fast broadband connections and access to housing, and skills (with the hope that your occupiers will be able to recruit your university’s graduates ).
Though a new build, with BREEAM excellent zero-carbon footprint may be on most wish-lists, recent escalating construction costs can make the eyes water. By the same token, converting an older building, particularly one with historical and / or architectural merit can also be costly with the added challenge of meeting the newer minimum energy efficiency standards (MEES) to allow letting. Nonetheless with experienced architects, surveyors and engineers on hand, any barriers to conversion, whether planning-related or financial, can usually be overcome.
Proper management of the “place” is critical. Occupier demands, driven by new, flexible models such as WeWork, are changing. With most commercial leases lasting less than seven years, you can expect to see demand for space that rarely goes beyond a year at a time without a break, and for occupiers to seek reassurance that they can add – or reduce - space when they need to. It’s not uncommon for a newly formed tech-based business to double its headcount in less than a year – and even for more established companies, changing accounting standards are having an impact too.
Leases or licences for incubation and grow-on space?
Assuming you’re not intending to offer a subscription service to rival WeWork, you’ll be using either a lease or a licence - circumstances will dictate which route is preferable. Factors to consider are the duration of the occupation, the level of flexibility needed, the physical security and confidentiality required, services provided, and your need to control what businesses occupy the space. This is distinction has significant impact on the rights and remedies available.
Seemingly a trap for the unwary, the Landlord and Tenant Act 1954 provides tenants occupying premises for business purposes, certain statutory rights including renewal at the end of the term of a lease. At day one, it might not seem likely you may want to manage-out occupiers who no longer meet entry (gateway) criteria, but as your science park goes from strength to strength and reaches capacity you will need to have considered this.
Licences are fast – but beware of having to repent later …
Many decide to choose a licence simply because they are quick, easy, less formal and outside the 1954 Act and its contracting out process. However, if the owner acts as if they were landlord, and the occupier as if they were a tenant, a court can be asked to declare whether the arrangement is actually a lease – a high profile example occurring only last year to the London College of Business’ landlord. If such case is proven the occupier can gain full tenant protection instantly.
And leases are slow – aren’t they?
Perceived to be slow and cumbersome, leases can be designed to be strong on control when you need it, but remarkably flexible on duration with breaks to facilitate trading up or down, space-wise. Indeed, even “contracting-out” can be very straight forward, and for a new letting, with forethought, a notice and declaration may not always be needed.
So, do leases take age and cost the earth? No to both – it’s quite possible to turn around lease paperwork in 48 hours or less, and for a tenant to be signed up and in occupation sooner: even with a licence, that’s hard to match!
Hot desks and virtual tenancies
Hot-desking allows fledgling businesses to access some space on a part-time basis, helping them to develop their business as part of your community, while virtual tenancies can enable companies to separate their business address from their director’s home without renting real space.
Properly documented, both are an additional revenue stream, but you will need to meet registration and money laundering compliance requirements. Do take advice, as registration and compliance are critical.
There’s lots more to talk about regarding the setting up of a science park or innovation centre, especially if you’re not working with partners who already understand the concept and its needs.
Barry Sankey is a specialist property lawyer with Wright Hassall. He has nearly four decades’ experience of working with the science park and innovation centre sector. He is a member of the UK Science Park Association.