With the June quarter day approaching this month both landlords and tenants of commercial premises will no doubt be concerned as to whether the rents due under their lease will or can be paid. This is particularly worrying for those in the retail, hospitality and leisure sectors.
Over the past 2 months, we at Parfitt Cresswell have been advising landlords and tenants on the different ways in which they can help each other in mitigating their financial position during this pandemic. Our advice has been that landlords and tenants should work together and agree concessionary arrangements to help tenant’s businesses survive this period of uncertainty.
What types of concessionary arrangements should be considered?
There are many options to consider such as rent deferment, quarterly to monthly rent payment schedules, rent paid in arrears rather than in advance, a rent free period, a temporary reduction in rent/service charge to reduce the amount a tenant will ultimately be left owing, a switch to turnover rent for a period or a draw down from any deposit held. It doesn’t all have to be one sided, as a landlord, when asked to consider any rent concession, this may be an opportunity to open negotiations for something in return, for example to remove a break date or to add an additional rent review or settle an outstanding one.
A short-term extension is also worth considering if you are a party to a lease which is approaching the end of its term. As a tenant, you may be unable to give up vacant possession or deal with any dilapidations just now. There are important factors for both parties to consider in this situation, advice should be sought, and any agreement needs to be in writing to avoid any potential disputes later down the line.
Any concessionary arrangements that can be agreed should be documented and, although this could be done by side letter, a formal deed of variation is the recommended course of action.
In recent news we have seen some of the larger, well-known companies such as Pret a Manger appointing advisers to help renegotiate its rents in a bid to avoid store closures during the epidemic. Telefonica (O2) are asking for rent concessions and other large companies, such as Burger King UK, have gone further and refused to pay any rent during the lockdown until they are back up and running. This kind of drastic action may not be appropriate for all tenants and, for smaller businesses, maintaining a good working relationship with landlords may be more important.
Unfortunately, there may be circumstances where agreements cannot be reached, and a tenant may have no choice but to bring their lease to an end altogether. In order to do so would involve either negotiating an early exit with your landlord or, in some cases, a tenant may be able to disclaim their lease.
What are my obligations as a Landlord?
The Coronavirus Act temporarily prevents you from evicting your tenants if they don’t pay their rent and non-payment of rent will no doubt have an impact on your financial position. On top of this, as a landlord, you will have duties under your leases and a big issue for you at the moment may be the provision of services.
You should check the service charge provisions in your leases carefully. You would normally expect these to protect landlords in the event of non-provision of services for reasons beyond the landlord’s control and they may contain sweeper clauses which would allow you to add to or vary services. It is likely, for example, that as a landlord you will be able to recover the cost of any deep cleaning of buildings as restrictions ease.
You should also be pro-actively monitoring Public Health England guidance. Health and safety regulations perhaps aren’t as relevant at the moment as you are unlikely to be in a position where you can impose strict hygiene or control movement of people. However, this situation may change as different measures are introduced in this area.
What does the legislation say?
The Government introduced measures to protect commercial tenants from forfeiture due to non-payment of rent. The Coronavirus Act 2020 expressly restricts the landlord’s ability to forfeit a lease during the ‘relevant period’. The relevant period will end on 30 June 2020 but may be extended.
Unsurprisingly, since the lockdown, non-payment of rent under commercial leases has become commonplace, as we have seen with Burger King UK. According to the British Property Federation, some tenants have interpreted these measures as an instruction not to pay rent. It has been reported that some of the larger chains and shops that have been able to remain open are using the crisis as an excuse not to pay rent. It should be noted that rent is still payable and the interest that has been accruing will be payable at the end of the ‘relevant period’. It remains to be seen whether the period afforded to tenants under the Coronavirus Act 2020 will be extended and whether landlords and tenants can work together and make their own arrangements regarding the rents due later this month.
We are offering a limited number of complimentary initial consultations this month. Using our telephone and video conference facilities you won’t even need to leave the comfort of your own home/office to speak to a member of our team.
If you would like to speak to one of our expert commercial property team call us today on 0800 999 4437 or email firstname.lastname@example.org quoting reference CPROPBbul090620 to reserve your spot today.