Protecting your business: Reviewing your tenancy agreement during financial difficulties

Figures from the Office of National Statistics (ONS) show that economic challenges are continuing to take their toll on UK business. A survey of UK businesses released on March 20, 2025 highlighted 26 per cent of business experienced a fall in turnover in February and 17 per cent expect turnover to fall in April.

For many businesses, commercial premises represent a significant monthly fixed cost. WHN director, Daniel Long, highlights the options for tenants struggling to manage rental payments, those looking to re-negotiate more favourable terms and options to minimise the cost of leaving a property.

Any tenant of a commercial property will be bound by the terms of their tenancy agreement. However, if a tenant is experiencing cash flow issues or is looking to re-negotiate lease terms to lower costs or give greater financial security, many landlords will usually be open to a discussion, especially with a long-standing tenant with whom they have always enjoyed a positive relationship.

If a commercial tenant finds themselves in rent arrears, there are various options that landlords may be willing to agree to, which could give a tenant flexibility to catch up with rental payments.

These can be either informal or formal agreements and include:

Payment plan: Agreeing a payment structure to allow a tenant to catch up on missed or late payments. This can benefit both parties as it gives flexibility to the tenant while allowing a landlord to recoup rent without further risk to the tenant’s financial position, and therefore the lease, if a tenant becomes insolvent.

Payment holiday: Agreeing a holiday on rental payment is another option to give some breathing space to a tenant. A landlord may consider this, particularly if there is an agreement in place to catch up on payments at an agreed later date.

Writing off a proportion of rent arrears: This may be the best option for both parties if there is a significant financial risk to the commercial tenant. If a landlord is keen to protect the lease, particularly a long-term lease, avoid liability for business rates and re-letting costs, or if they have a good relationship with a tenant, they may be willing to agree to this.

Lease restructuring options

Many commercial leases include an end date but also a break option – a right to terminate the lease early, usually subject to specific conditions and notice, often on a given date. A tenant of a commercial property looking to lower their costs or protect their financial position may also wish to explore potential longer-term variations to a lease with the landlord to protect their finances in future.

There are a variety of options which a landlord may be open to discussing, including:

Re-negotiating lease terms: If either the end date or break date of a lease is approaching, this can be used to a tenant’s advantage in negotiating more favourable terms, particularly in times of economic downturn. A landlord will be more likely to wish to retain a good tenant if they feel it will be difficult to find another.

One option may be to extend a commercial lease with a reduced rent or more favourable monthly payments or other terms, in return for a longer lease. This may give both parties greater financial certainty.

Early end to a lease: If a tenant is in financial difficulties or has a portfolio of rental properties they are looking to consolidate, they may wish to explore an early end to a lease agreement. A landlord is usually more willing to agree to this if a tenant can find another business who will take on the existing lease, or a new lease on similar terms. Some landlords may be receptive to an early surrender.

Sub-letting: This is the term for when a commercial tenant rents out all or part of the leased property to another business, while remaining responsible under the original lease. It is a good option for businesses who may no longer need the same amount of space but are bound by the terms of a lease or wish to remain in part of the property.

Mitigating financial costs when leaving a property

The lease agreement will usually dictate the state of repair a property must be left in when a tenant vacates. This is known as dilapidations and a schedule is often served by the landlord listing required repairs and reinstatement either in the lead up to lease expiry or shortly thereafter. If a tenant does not adhere to the lease terms, they may be liable for the cost of returning the property to the required condition.

Dilapidations vary from lease to lease but may include general disrepair, damaged fixtures and fittings, removal of a tenant’s branding, cleaning and returning the space to its original layout. A commercial tenant can mitigate the cost of leaving a rental property by carrying out any necessary works themselves or with a third party, prior to handing back the premises.

It is advisable that tenants seek early legal advice and advice from a qualified surveyor to understand what repairs and work is required to ensure compliance with the lease. Tenants may be able to agree a specific scheme of works with the landlord in full and final settlement of any breaches of their repairing obligations.

For further information on dilapidations, read our article: How to avoid a large dilapidations bill when vacating commercial property

The importance of communication

Good communication between a landlord and tenant can help resolve many situations which arise in a commercial lease during periods of economic uncertainty – and can help to avoid more costly legal situations, such as if a landlord begins debt recovery proceedings or seeks to regain possession of the premises.

Instructing a solicitor with commercial property and dispute resolution experience can help to receive advice on lease renewals and negotiations, ensure agreements are properly drafted and to support a tenant with dilapidations or an exit strategy.

Daniel Long is a director at WHN Solicitors and heads up the firm’s commercial department and property disputes team.

He specialises in resolving disputes between landlords and tenants of commercial leases on matters including rent and service charge recovery, dilapidations, forfeiture, possession, insolvency-related matters, and lease renewal and termination.

For advice on how to deal with a commercial tenant in financial distress, please contact Daniel on 0161 761 8063 or email him at [email protected]