Sarah Cameron, associate in Clarion’s real estate team, provides expert advice for tenants and landlords:
As the lockdown restrictions continue without any certainty around an end date, many businesses across the UK are continuing to face challenges. The introduction of the Coronavirus Act 2020 provides a moratorium on the forfeiture of business tenancies for three months. As landlords cannot terminate a business tenancy on the grounds of non-payment of rent until June 2020, this has sparked discussions between landlords and their tenants around finding a workable solution for both parties.
As a tenant, if your business has missed its last rent payment, it is best to approach your landlord informing them of your circumstances and try to reach an agreement.
Where a tenant has paid a rent deposit to their landlord, tenants can ask their landlord to deduct the rent payments from the deposit. This reduces the level of unpaid rent without affecting the tenant’s cash flow. The terms of most rent deposits require the tenant to top up the amount following each withdrawal made by the landlord. Tenants can seek their landlord’s agreement that the requirement to top up the minimum balance is eliminated or deferred until the tenant’s business can reopen and cash flow has improved.
Exploring rent payment holidays is another option. It is important that landlords and tenants are clear on both parties’ expectations of any potential rent holiday. If the landlord agrees to a rent-free period, then rent payments do not accrue during the period, but will most likely just be added on to payments owing once restrictions are lifted. Being clear on what is expected by each party is essential. In the absence of any such agreement, whilst the moratorium remains in place until June, rent payments continue to accrue and the rent ultimately needs to be paid. Agreements should be reached with the landlord and documented in writing prior to this date.
In return, landlords may make some of the following requests. If your tenant has not paid rent for the last quarter and they have requested a rent holiday, you may consider asking for variations to the lease which compensate you for any agreed concessions.
A landlord can seek to add a break right in their favour to the lease. This allows a landlord to terminate the lease prior to expiry without relying on, or needing to satisfy the requirements for, forfeiture.
A landlord may also consider introducing enhanced or more frequent rent review intervals for the remainder of the term of the lease.
Another option is for the landlord to ask a tenant to extend the term of their lease which presents landlords with the comfort of continued occupation for an additional period.
All of these agreements however have an effect on remaining provisions in the lease and would need to be carefully considered and documented to ensure they take effect as the parties want.