Managing Conflict in Professional Services Firms: Why Real Estate and Lease Incentives Matter During Succession

Conflict in professional services firms is a common occurrence. With flat structures, shared ownership, and high-performing individuals, tensions often arise around succession, governance, and major investments. One underestimated flashpoint? Corporate real estate strategy, particularly when long-term leases and incentive allocations intersect with partner exits.

As firms evolve, decisions about new office space, long-term leases, or costly fit-outs are positioned as strategic milestones. However, these commitments carry risk when they are not aligned with the firm’s succession plan. Lease incentives such as rent-free periods or landlord-funded fit-outs can become highly contentious when outgoing partners seek to benefit from them disproportionately.

Consider this scenario: A law firm signs a 10-year lease, underpinned by a $2M landlord incentive. Senior partners, nearing retirement, push for a premium fit-out that reflects their legacy. The incentive is used to reduce their immediate capital contributions. Meanwhile, junior partners inherit long-term lease obligations without equivalent short-term benefits. Resentment builds.

This disconnect between who benefits and who bears the burden is common where partner tenures differ. Without clear agreements, lease incentives can distort exit valuations and fracture trust.

How can firms avoid this?

1.    Embed real estate strategy in succession planning. Do not make 10-year commitments when key partners are exiting within three.

2.    Clarify lease incentive treatment in the partnership deed. Define how fit out contributions are allocated and amortized over time.

3.    Use neutral advisors. Independent valuations and financial modelling can help depersonalise disputes and support fair decisions.

4.    Foster transparency. Communicate openly about capital obligations, real estate impacts, and exit timing. Surprises erode trust.

5.    Align benefit and burden. Structure incentives so that those who benefit from a fit-out also carry an appropriate share of its cost.

Real estate may seem like a back-office issue, but in professional service firms, it is a frontline issue during succession. Offices are more than physical space; they are legacy symbols, cost centres, and cultural battlegrounds. Getting the strategy wrong can trigger deep, enduring conflict.

Firms that navigate this well do so by embedding governance, planning early, and aligning strategic decisions with generational transitions. When managed wisely, real estate can unite a firm’s future. When mishandled, it can divide it.