RENT CONCESSIONS – ADVICE FOR TENANTS

Even as the COVID-19 social restrictions are easing, uncertainty abounds. We remain hopeful that the path to easing restrictions will continue unimpeded but reports on the spread of new variants of the virus remain cause for some concern. Against that background  we are still finding that tenants have been and continue to look to agree rent concessions from their landlords, whether by way of reduced rent or suspending rent entirely for a period of time, altering the payment terms such as paying monthly rather than quarterly, or asking their landlords to write off rent arrears.  Furthermore, tenants are also asking when they take a new lease or renew their existing lease if they can have rent free periods and if they can have rent suspension clauses to allow for rent suspension if restrictions on free movement remain or are imposed once more.  Tenants should bear in mind the tips below as to how any such agreement can best be achieved in such a situation.

What considerations should be taken into account?

Factors to be included in the negotiations with the landlord include whether the concession applies to just the principal rent or if it includes service charge and insurance payments as well.  Will these payments be deferred or waived?  If deferred, can these payments be repaid in instalments and do they include interest?  What restrictions will trigger the start of the rent suspension and will there be any limitations on trading from the premises?  It is likely that tenants will want the rent suspension to continue if they are allowed to trade but there are restrictions on opening hours or the number of persons that can be on the premises in place.

From a tenant perspective, it would be prudent to ask for any rent suspension clauses to apply to general trade restrictions resulting from any future pandemic and not just COVID-19 specific restrictions.  Tenants should also consider whether the agreement with the landlord covers all Government recommendations and restrictions. Will the arrangement cover any circumstance that impacts on the tenant’s business, or just the restrictions that are imposed as a matter of law?

How to record the agreement

The agreement should be documented in writing.  Ideally, if taking a new lease or renewing an existing lease, the rent suspension clauses should be included in the new lease itself.  If this can be agreed, the agreement will bind the landlord’s successor in title should the landlord sell his interest in the premises.

If the lease is already in place and not subject to a renewal, there are two options for incorporating such an agreement. Practically, most landlords are likely to want to make the agreement personal to the parties so that it applies just between that particular landlord and named tenant.  In those circumstances, the landlord will want to record the agreement by way of a side letter.  The tenant may prefer to seek a deed of variation of the existing lease so that the varied terms apply to and legally bind the landlord’s successors and the tenant’s assigns, if any.

Terminating the agreement

Particular care should be taken as to how and when the agreement will end. The case of Vivienne Westwood Limited v Conduit Street Developments Limited (2017) showed that the termination provisions in a side letter which allowed a landlord to terminate the agreement if a tenant breached the terms of the side letter or those of the lease operated as a penalty and as such the side letter was unenforceable.

General

A practical consideration to be taken into account is whether the parties wish to restrict either of them from publicising the agreement for commercial reasons. The landlord may not want it to be publicly known that it has agreed to significant rent concessions. Likewise, the tenant may prefer that it is not made public that it has been struggling financially. Other terms of the lease may be excluded as well during the rent concession period such as the tenant’s obligation to keep the premises open.  Overall, the whole of the lease should be considered carefully as to whether the tenant can comply with its obligations.

It is our job to make sure that you achieve your intended objective and do not overlook any of the other provisions of the lease in doing so.

Should you require assistance or advice on negotiating or documenting any agreement for rent concessions with your landlord or tenant, please do not hesitate to contact the Commercial Property department at Colemans via Dara Galic by telephoning 01628 631051 or by email to commercialproperty@colemans.huntersserver.co.uk

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This post was written by Colemans Solicitors LLP