Coronavirus: Recording Commercial Rent Concessions

The symbiotic relationship of landlord and tenant is often a fraught one in particular in the already beleaguered retail sector, but the compulsory closure of some business premises and the huge reduction in revenues for other businesses has put it under increased strain.

It is estimated that landlords may have missed out on as much as £2.5 billion from businesses failing to pay their rent on the March quarter day. It is difficult to feel anything but sympathy for tenants who have either had to close with no income coming in or whose incomes have been drastically reduced by the impact of the lockdown, however it must be remembered that not all landlords have deep pockets and they also have their own mouths to feed and mortgages to service.

It is apparent that many banks have been somewhat slower to offer landlords some respite than the Government with their three month moratorium on landlord’s ability to forfeit commercial leases.

Rent free period or Rent deferral?

This moratorium does not amount to a rent holiday or rent free period and the tenant’s obligation to pay the rent under the lease remains, it also does not prevent the landlord from taking other enforcement action such as serving a statutory demand on the tenant, however there seems little profit in making a tenant insolvent where it is unlikely that there will be a queue of new tenants clamouring to take a lease of the premises. The answer will often be that the landlord and tenant will have to co-operate and work together to find a mutually agreeable way through the crisis.

Whilst there is unlikely to be any obligation on a Landlord to act in good faith there will often be good commercial and reputational reasons to do so. Where landlords and tenants do manage to reach agreement to defer or waive rent payments it is very important that these are accurately recorded by way of a side letter to ensure that there is no ambiguity as to what was agreed and to make sure that the terms of lease are not permanently waived or any guarantor inadvertently released.

Recording rent concessions in writing

The terms of any agreement should be as simple and clear as possible and should deal not only with the current situation but also what will happen in the future. Accurately recording any agreement will hopefully lead to fewer disputes in the future and a less strained landlord and tenant relationship.

Blog post written by Guy Osborn head of Commercial Property