During this unprecedented time of uncertainty, both landlords and tenants are facing their own unique challenges. For tenants, their business may have shut down and now rent payments are looming. Tenants may be approaching insolvency if they are unable to cut overheads. Landlords too will be facing their own financial pressures and their desire to assist their tenants to ensure they survive the crises, must be weighed against their own liabilities. Landlords will naturally be wary of opportunistic demands.
In Northern Ireland, most commercial leases provide for quarterly payments in advance. At the time of writing, the next Northern Ireland quarter day of 1 May is rapidly approaching.
If it is clear that measures are justified and appropriate, the best thing that both parties can do, is to have early discussions about the issues they are facing. Many landlords and tenants have already entered into discussions, with tenants requesting rent reductions, rent suspensions, amended payment cycles or rent deferrals. Other bespoke arrangements might be appropriate, such as tying any rent concession to other amendments, such as the removal of a break option. A formal re-gear of the lease might be appropriate, to make the arrangement more palatable to the landlord in the long run, whilst assisting tenants get over their immediate challenges.
Tenants are also raising issues besides rent, with some questioning elements of services related to COVID-19 and therefore, arguably outside of permitted service charge expenditure. Tenants may try to argue that these costs are the responsibility of the landlord, or should be recoverable by insurance.
It is extremely important that any such arrangements are correctly documented. In most cases, this can be done by way of a carefully drafted side letter. Clarity is key. The agreement should clearly record the terms agreed, but also: whether it is personal on the Tenant (most likely); the period for which it will last; whether the concession can be withdrawn and in what circumstances; and what happens in the event of breach or insolvency.
Any agreement should include any tenant guarantor. Lender's consent may also be required.
Where agreements are not formally documented in writing, temporary concessions could become permanent variations to the lease. Tenants may subsequently claim that the landlord has lost its right to enforce the lease terms. For tenants too there is a risk of not obtaining the full benefit of any concessions, where they have not been adequately documented.
If you are a landlord or tenant currently trying to navigate these difficulties, get in touch with our Commercial Real Estate team – we can advise on what the best course of action is for you in your situation, and can ensure that any discussions or agreements are correctly documented, minimising the likelihood of any future disputes over amended terms.
This article has been produced for general information purposes and further advice should be sought from a professional advisor. Please contact our Commercial Real Estate team at Cleaver Fulton Rankin for further advice or information.
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.
