If you are a business tenant and your quarterly rent demand has just arrived you may be asking this very question. In short the answer is “yes”, but in the last few days the Government has published a Code of Practice which seeks to address this very real issue.
The Code, which purely applies to commercial property, doesn’t go as far as some other countries, such as Australia, where there is mandatory relief for some. But it is a step in the right direction, or “a good starting point” as the foreword to the Code concludes. First of all, it is voluntary; it mentions words like “good faith”, “collaboration”, “coming together” and “sustainable future” but at the same time it sets out a number of practical steps that could be considered to help tenants agree individual arrangements that will see them through the current storm.
The suggested concessions are nothing new; rent “holidays”, rent deferrals, monthly repayments, payments in arrears, temporarily utilising rent deposits, waiver of interest on unpaid sums, reduction of service charges, reasonable lease re-gears, and more. But the key is for tenants to communicate and, if necessary, demonstrate and evidence a reduction in income to support their request for flexibility.
A charter to withhold rent this is not, but neither is it a signal to landlords to carry on regardless. Commercial landlords were facing their own crisis long before lockdown became a national pastime, particularly those in the retail and hospitality sectors. Some shopping centre operators were already close to breaching banking covenants and having to re-engineer the very nature of their assets as large multiples announced closures of stores.
As part of the Government’s measures, those landlords are being encouraged to look at the obligations to their lenders and seek to review those and, as the UK Finance website states, are expected to pass on the benefits of payment holidays to their tenants to ensure that they are supported during this time.
But for the time being at least, the underlying legal relationship between landlord and tenant is not altered. The only other recent concession to tenants is the moratorium on the landlord’s ability to forfeit for non-payment of rent which has been extended until 30 September 2020.
In the meantime, any arrangement agreed will need to be carefully documented and have clarity, particularly as to any triggers that might bring them to an end. Bower Bailey’s commercial property team can assist with this process to ensure that they are correctly and properly recorded.
