On the back of many businesses closing their premises to tackle the on-going COVID-19 crisis, we take a look at how landlords can work with their tenants to support them at this difficult time, whilst protecting their interests.
Do I have to offer a rental holiday?
Offering short term rent holidays may help your tenants to remain in business during these difficult times, thereby ensuring you maintain occupation of your premises both now, and hopefully beyond COVID-19.
A point to agree is whether it is a rent deferment or rent free period. The first is clearly more preferable to a landlord but may not solve the problem for the tenant.
There are two sides to the negotiation. Whilst considering your tenant’s current needs, think about what you may need at this time or going forward.
Is there a break option in the tenant’s lease terms in 12 months’ time which could be beneficial to remove to give you more income security?
Might this be something that your tenant would be willing to trade for a rent holiday?
Is there a rent review in the next 6 months? Is it worth agreeing a new rent now as part of any agreement? Any rent deferment could be taken into account.
Rent holidays offer the perfect opportunity to have sensible discussions that you would normally have in the market, to help achieve something for everybody at this challenging time. Make sure the terms of any agreement are clearly set out and documented appropriately to avoid problems in the future.
Should I be instigating a rent review at this time?
It is important to check your lease and take advice on the rent review. If the lease dictates specific timing or notices which need to be served, then you may need to instigate the rent review in order to avoid missing the opportunity.
If the lease does not put a time limit on when the rent review can be instigated, then it is your choice and dependent on any advice received.
What effect is COVID-19 going to have on rent reviews and should we be altering our standard rent review clauses on any new lease?
COVID-19 is undoubtedly going to have an impact on some rent reviews in the short term. The extent and implications for a rent review will be dependent on the market and sector in which the property sits and will only be known in time. We are closely monitoring transactions within our regions and are happy to discuss any specific property.
The important consideration is that if you have a rent review in the immediate terms and your tenant is requesting help during this time, give considerations to the rent review and whether you should be seeking to agree it as part of a larger lease restructure.
It may be advisable to instigate it now before future evidence is created which affects the rent review outcome.
The important thing is to quantify the potential outcome of the rent review through a full market review as this may influence any conversation that you have with your tenant.
My tenant wants to change to monthly rental payments, should I agree?
You aren’t obliged to acquiesce to this request, but given the current climate, it may make commercial sense to do so as it is more beneficial for you to have some income rather than none.
The practical implications need to be considered. How long will monthly payments last for? Is it personal to the tenant? Do you have additional costs as a result of monthly payments?
Again, make sure it is appropriately documented and that, if a change to payments is agreed, guarantors and assignors must be informed.
Can I use the Rent Deposit?
Depending on the wording of the agreement, these funds can be available to landlords and can be used to settle rents due.
Can I forfeit a lease if my tenant does not or cannot pay their rent?
Normally, if a tenant withholds their rent, you could re-enter the property without notice and take possession without court action by changing the locks, and effectively, ending the lease.
However under the Coronavirus Act 2020, tenants are protected as forfeiture is now prohibited for 3 months, although once the prohibition has been lifted this will be an option and if the rent is in arrears with no concession agreed, the forfeiture could be put in place to recover the debt.
It is also worth noting that in this extraordinary time, the Government and British Property Federation are urging cooperation.
However, there are other options available to the landlord if your tenant refuses to pay rents due under the lease:
- Legal proceedings – money claimed as a debt
- Statutory Demand – although stage 2 of this process is currently unavailable
- CRAR – but Bailiffs cannot enter if the property is closed and may not be willing to attend.
It is worth seeking professional advice about what would make the most commercial sense in the current climate, before going down this route.
To discuss this, or any other issue in this article, don’t hesitate to contact our lease advice team for assistance.