Our team: Jonathan Hibberts
The lease says that rent needs to be paid in full each quarter or month, but the government seems to be saying that it may not be appropriate for the tenant to pay the rent. You wouldn’t be alone in saying that you are confused!
“The Government has always been clear that tenants who are able to pay their rent in full should continue to do so, whilst those businesses that cannot pay in full should communicate with their landlord and pay what they can. Landlords should also provide support to businesses if they too are able to do so.”
What on earth does that mean?
This is being interpreted in many different ways, with some tenants that are genuinely struggling paying their rent, and other tenants saying “while we have the cash, we want to hold onto it in case we need it”. This is not a “one-way street” in favour of tenants. A (voluntary) Code of Practice for commercial property relationships during the Covid-19 pandemic has been issued by the government which states:
“landlords should provide support to a tenant where reasonably possible, whilst having regard to [the landlord’s] own financial commitments and fiduciary duties.”
The Government is also clear that government support is intended to help businesses to meet their costs (including rent):
“this support is intended to help them meet the costs of maintaining their businesses and saving jobs. We recognise rent is one of these costs [that the government is seeking to help tenant’s meet].“
The Code is also clear that certain sectors are expected to have greater needs than others (with hospitality, leisure and parts of retails having the greatest need). We have covered the Code in a little more detail in another of this issue’s articles.
Here are a few tips:
There are a menu of options, which you may want to consider in the following order:
Most of the options are not binary: for example, paying a proportion, rather than all or nothing, or potentially a “mix and match” of the options.
You may want to consider regearing the lease (if there is something that might be attractive to the landlord in return):
Whatever you decide, take care to record the arrangements properly, to avoid any unintended consequences and consider the following:
Finally, if the landlord or the tenant act unreasonably this may impact on your future relationship (or the viability of the tenant’s business). It goes without saying, but of course, we would be happy to help you navigate the options and processes and to assist in documenting the arrangements.
For a commentary on the Code of Practice for commercial property relationships during Covid-19 (and a link to the code itself) see our other article: Click here