One of the consequences of recession is the pressure that landlords face from tenants seeking to drive down rents. As landlords need to try to maintain headline rents, to shore up the value of their investment, their response to such pressure will often manifest to offer a range of inducements and concessions.
The difficulty that landlords then encounter is how to formalise such arrangements in a way which keeps them "behind the scenes", so as to minimise the risk of the detrimental knock-on effect on other rents. A rent free period agreed on review or re-gear, gives rise to the risk of other tenants wanting similar deals. And the tide of such deals has a significant impact on the market generally.
The particular problem is how to package deals so as to keep them out of sight, enabling the headline rent to be outwardly maintained.
A number of recent cases have highlighted this difficulty for
landlords, where tenants, in rent review arbitrations, have been
able to obtain orders from the court requiring parties to such
deals to divulge the terms, even where subject to confidentiality
agreements. And once the terms are "out of the bag", even
if restricted to the particular arbitration, word gets round, and
shoring up the confidentiality becomes progressively more
difficult.
One might argue that this is the unstoppable reality of the
downward market. However, from the landlord's point of view,
the lesson is look carefully at the way deals are to be structure
and packaged, and to be aware of the risks of terms being revealed.
And however smart one can be at trying to protect the headline
rent, a weather eye may also need to be kept on the tax man.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
