As the lockdown restrictions continue without any certainty around an end date, a lot of businesses across the UK continue 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.
What can tenants consider?
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 tenants cashflow. 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 cashflow has improved.
Rent payment holidays
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.
What requests are landlords making in return?
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 consider introducing enhanced or more frequent rent review intervals for the remainder of the term of the lease.
Additional lease to extend the term
A landlord may 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.
Get in touch
We appreciate the current situation presents an unclear picture for some of our clients; hopefully we can help present a practical way forward. It is important that any variations to your leases are documented appropriately to protect the interest of both parties. If you have any queries, please get in touch with Sarah Cameron.
Disclaimer: Anything posted on this blog is for general information only and is not intended to provide legal advice on any general or specific matter. Please refer to our terms and conditions for further information. Please contact the author of the blog if you would like to discuss the issues raised.