COVID 19 – What happens to the rent?

The impact of the Covid-19 virus is unprecedented.  Businesses have suddenly lost their income stream from locked down customers.

If they are not doing it already, landlords and tenants of commercial properties should be having an open discussion about what to do next and how to deliver a viable solution for both parties.

While the government is providing a range of reliefs with rates holidays, grant funding, loans and protection from eviction, a landlord and tenant can also consider a range of solutions themselves. From a landlord’s perspective, losing a tenant now to insolvency could mean a lengthy void period before they get a replacement. Some rental income stream is therefore infinitely better than none at all.

There are a number of options available and this is not an exhaustive list. One size does not fit all and every landlord, tenant and business relationship will be unique.

One of the first things to consider is a rent concession where some or all of the rent can be delayed until a later date in the year. This could mean, as an example, that the tenant pays a proportion of  the June and September quarters rent with the shortfall being made up in the December and March quarters. Simple measures such as altering the frequency of rent payments from quarterly to monthly will assist cashflow for the tenant. Another solution is to consider using or releasing a rent deposit to pay the rent rather than collecting the rent itself. There is a tendency in leases for rent review dates to be tied to the tenant break dates, so if a tenant does not like the landlord’s proposals for a rent increase they can end the lease. A landlord may want to consider dropping a rent review if the tenant agrees to give up their break clause as this will commit the tenant to the lease for longer.

It is important to document what is agreed correctly so that neither party is inadvertently prejudiced. It may be possible to have a simple short term concession letter, or for something more substantial such as a deed of variation of the lease. Some care is needed here, the last thing the landlord and tenant wants is to accidentally surrender and re-grant the lease as this can cause major issues of uncertainty later on.

While the lockdown will not last forever, its impact on businesses and cash flow will go on for longer.

For more information about your rights as a commercial landlord, please contact the Commercial Property team on 01483 887766, email us or start a live chat.

This is not legal advice; it is intended to provide information of general interest about current legal issues.

 

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John Guthrie

Associate, Commercial Property

John started his career at Hart Brown in 2016. He is a Commercial Property solicitor with 21 years post qualification experience in property. He is...

Associate, Commercial Property

John Guthrie

John started his career at Hart Brown in 2016. He is a Commercial Property solicitor with 21 years post qualification experience in property.

He is a member of the Law Society and has written articles for the local press in Kent, Sussex and Surrey.

John's specialisms:

The full cycle of business leases, buying and selling businesses as a going concern, specific expertise in the leasing and disposal of licensed premises, development work and residential leasehold extensions.

His most memorable case:

Handling the property aspects of a £20 million company acquisition and restructuring the leaseback arrangements to achieve a substantial SDLT saving.

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