Business closures, staff working from home, plummeting sales and a reduction in required services are all leaving businesses in a difficult situation across the UK. The government has brought in various measures to try to relieve the financial burden of businesses and individuals, but a tenant’s obligations under a commercial lease remain unchanged – so what are your options if you can’t pay your rent?
The key in the current climate is to be open, honest and talk to your landlord. Although they are under no obligation to do so, those landlords who are financially able may be sympathetic to help their tenants survive this crisis.
You could request a rent concession such as:
- a waiver of payments for an agreed period
- a reduction in the rent for an agreed period
- a deferral of rent payments until a certain date
- a change to monthly rent payments to ease cash flow
If you do manage to come to a mutually agreeable solution, fully document any changes in very clear terms and ensure both parties sign the agreement, to avoid any future disputes. It is highly advisable to seek legal assistance to ensure any such agreement covers all the necessary ground taking into account factors such as interest, rent deposits, guarantors and generally the technicalities of how the concession will be structured and agreed.
What if you cannot pay rent?
The Coronavirus Act which came in on 25 March 2020 removes the landlord’s right to exercise forfeiture for what is termed “the relevant period”. This is defined to run from 25 March 2020 until 30 June 2020 “or such later date as may be specified by the relevant national authority”.
Forfeiture is a part of most well-drafted commercial leases. If the tenant has breached the lease obligations, forfeiture allows the landlord to re-enter the leased property after a certain number of days to terminate the lease and take back possession of the property.
Although as a tenant you will be safe from forfeiture for this period, the Coronavirus Act simply postpones your financial obligations and requirement to pay until the “relevant period” expires. Also, the landlord’s other remedies for non-payment are still available to them, which may include taking money from a deposit, pursuing a personal guarantor or petitioning for the tenant’s the bankruptcy.
Ending your lease early
You may decide that the only viable option for your business is to exit the lease early. If you have a break option with a break date coming up this may be possible, but it is highly advisable to take legal advice on the terms of your break option and the steps you would need to take to exercise the break.
If you do not have an imminent break option you could ask your landlord to agree to you surrendering the lease early, but bear in mind that they will have their own financial obligations so it is very likely this request will be denied in the current climate.
Open channels of communication and collaboration are vital – generally both parties will have a vested interest in agreeing suitable concessions where possible.
It is important to seek legal advice in any dealings involving property assets and changing the agreement you have in place with your landlord.
If you have any legal questions regarding your commercial property contract, contact Jon Frayling on firstname.lastname@example.org for advice on your options and how best to proceed.