K&L Gates looks to offset rent costs as City partner pay surpasses profit

Property accounts for 20% of all costs as London office reveals £1.7m financial shortfall

K&L Gates put more than 10% of its One New Change offices up for let last year as it sought to reduce its exposure to the high rental costs at the prime London location.

The move comes as the publication of the firm’s UK limited liability partnership (LLP) accounts showed it paid out more to partners in 2012 than they brought in in terms of profit.

According to the LLP filing, the deficit generated by the UK partnership, taking into account members’ remuneration and profit distribution, was £1.75m. To fund this shortfall, the firm’s Delaware LLP paid £2.7m to the UK LLP.

Last year K&L Gates sought to sublet 12,000 of its 100,000 sq ft of space across two floors at One New Change. Landlords for the property, Land Securities, confirmed that the firm had been looking to lease out some space that remains empty.

According to the LLP accounts, K&L Gates paid £8.4m in land and building leases in 2012, against turnover of £39.2m and profits of £3.6m, meaning a fifth of all UK LLP turnover was spent on property. The firm moved to the premises in 2011. Last year, the building was crowned best office in the UK by the British Council for Offices. 

K&L Gates management is understood to place high value on prestige office space, with the decision to move to the City offices, taken in 2007, seen as a big pull for clients. One insider said: “Personally I would be looking at keeping all the overheads down given current market conditions. I can’t say I’ve taken a straw poll of the London office, but there are plenty of people who would agree.

“The deal was done before the financial crisis, when expensive overheads may not have been as great a concern.”

One senior tax specialist said the losses being sustained by the partnership were “clearly not sustainable”, adding: “It essentially means they have paid out to partners more than they have earned.”

In 2011, the LLP also posted a loss for the financial year of £2.7m, after members were paid £4.7m despite profit before remuneration and profit shares sitting at £2m.

K&L Gates chairman Peter Kalis and management did not return requests for comment.