With emergency legislation protecting commercial tenants from forfeiture/peaceable re-entry for non-payment of rent yet to receive royal assent (although this is expected imminently), there are still a number of question marks about how this will work in practice.
Once passed, for the relevant period (currently until 30 June 2020), no right of re-entry or forfeiture proceedings can be made or commenced for non-payment of rent. Nor can any action by the landlord (other than an express written release) be construed as waiving the right to re-entry.
What is clear is the Government’s intention to allow open dialogue between landlords and tenants to alleviate tenant cash flows in the short term. However, unless expressly agreed in writing it appears that the financial obligation to pay the rent for the period still remains. Nor does the proposed legislation currently limit a landlord’s other remedies – using a deposit, having recourse to any guarantee, commencing bankruptcy or winding up proceedings or any other recourse to recover rents.
This will be cold comfort for some tenants. The legislation might buy them some time but if they’re not trading now, how will they pay deferred rent in the future? Landlords may need to go further and our experience is that many are already offering more commercially workable rent concessions.
Where that’s the case, all parties need to consider whether such concessions should, ideally, be consolidated into an enforceable side agreement. Or, indeed, whether, a “wait and see” policy is best – it may be in a landlord’s interest to allow no further concession than that which the government is offering. It all depends on the relationship a landlord has with its tenants and the type of businesses they are.
If concessions need to be made now, as a minimum, a written record should be made and acknowledged by both parties to avoid uncertainty in the months to come about what exactly has been agreed. Careful consideration should be given as to how this is done and on what terms, and this is especially the case where there is a guarantor to the lease and/or an authorised guarantee agreement was given by a previous tenant. Also, if the property is mortgaged, it will most probably be the case that the landlord will require mortgagee consent to any rent concession. Please therefore contact us for further information and to discuss how to deal with whatever situation you are in.
We have produced a short checklist for all parties to consider if they are considering a rent concession arrangement:
1. Have you agreed:
- to waive payment of rent completely or partially; and/or
- that rent should be paid in arrears rather than in advance; and/or
- that rent should be paid monthly/weekly instead of quarterly?
2. Have you agreed to waive the right to the rent absolutely or partially and do you intend for it to be repaid at some future date? If so, will it be repaid in instalments (if so at what intervals) or as one lump sum (if so, when)?
3. Does any waiver apply to service charge and insurance rent or just annual rent?
4. What period does the rent concession apply to – from when to when?
5. Do you expect interest on all unpaid rents (annual, service charge and insurance rent) to accrue or are you waiving this too? If you are not waiving interest, when do you expect it to be paid – what intervals?
6. Have you discussed using monies held on deposit to pay rents instead? If so, do you expect to withdraw from the rent deposit and do you expect it to be topped up again – if so, when?
7. Is there a head landlord? If you are the immediate landlord, are you obliged to ask the head landlord for consent to the concession you are agreeing with your tenant? Similarly, are you going to in turn ask for a concession from the head landlord for rent you are liable for?
8. Is there anything else that you think might be relevant that we need to know in order to record what has been agreed?
Note that whilst the checklist above it quite detailed, the simpler the arrangement that you enter into the better as this is easier to document and less scope for error or oversight.