The challenges facing tenants and landlords

As the UK recovers following coronavirus, Hayley Bamber, associate solicitor and property litigation specialist at Harrison Drury, offers some guidance on how landlords and tenants can reach agreements regarding rent payments and take a proactive approach to renegotiating a lease.

Recent events have certainly put commercial landlord and tenant relationships under the microscope.

In the immediate aftermath of lockdown, the Coronavirus Act 2020 was brought in to prevent landlords seeking forfeiture of the lease for non-payment of rent.

Some tenants have also benefited from agreed rent deferrals, rent holidays and relief on business rates.

It’s our understanding that new coronavirus support and legal protections are being considered for the commercial property sector. Even so, we’re entering a critical period for landlord and tenant relationships as we approach the June quarter rent payment date and some of this support comes to an end.

Look at the bigger picture

Landlords absolutely need to keep the money coming in to sustain their business, but it’s important to also look at the bigger picture when re-negotiating leases and collecting rent arrears.

If landlords are too aggressive in demanding rent, they potently risk the tenant becoming insolvent. In what’s likely to be a tough market, there’s a chance they risk having empty properties.

Of course, not all landlords and businesses are going to struggle, but economic uncertainty will inevitably lead to some business failures and empty units. Such uncertainty will create competition to attract new tenants and is likely to lead to some fluctuations in commercial rents.

Take control of the situation early

My advice for both landlords and tenants is to speak to each other as early as possible. Don’t bury heads in the sand and wait for something to force the situation.

It’s our experience that where tenants engage early with their landlord, and vice versa, trust and understanding can grow and this can create a more fertile ground for negotiation.

Weigh up the different options

There are a number of ways that a commercial landlord can look to help their tenant sustain that tenancy. An option for some landlords may be to enter into a rent deferral agreement with the tenant.

A term of that agreement may be that the deferred rent would only be repayable if the tenant breaches any terms of the lease throughout the term of the tenancy. Negotiations to extend the length of the lease may also form part of those discussions.

Another measure might be to agree for a payment to be taken from a rent deposit with the terms of a top up payment then agreed.

In some circumstances, landlords may also consider ‘turnover rent’ for a new lease, which uses a calculation to link rent payments with the turnover achieved by the tenant’s business. Turnover rent sees the landlord and tenant share the rewards of the good times, but also the risk of the leaner times. Another option may be a reduced rent in the short term while businesses, especially those in the hospitality sector, reopen and recover.

Seek expert advice

As a property litigation lawyer, I know as well as anybody that not all landlord and tenant relationships run smoothly. Each matter needs to be considered on its own merits.

And even where they do, it’s still important for both parties to seek legal advice to ensure they don’t inadvertently do anything that compromises the lease agreement.

The key to a healthy commercial property market in these tough times is going to be finding a mutually beneficial way to move forward when it’s needed.