Rent Arrears – Tips for Commercial Tenants
1 October 2020
2020 has been a year to forget for business – mandatory closures and numerous challenges on reopening have placed significant financial strain on all businesses, particularly those who are commercial tenants. It is therefore no surprise that some tenants have found themselves in rent arrears.
If you are a commercial tenant facing rent arrears, you need to act quickly to avoid making a bad situation worse. Landlords and tenants face competing financial pressures and while there is no “one size fits all” solution, making a real effort to opening a dialogue with your landlord, could save you from costly legal action which will divert time and money better spent on your business.
- Be Honest – When a tenant is unable to make rent payments, the worst thing they can do is to hide from the situation or simply stop paying rent without giving your landlord any indication of when or if payments will resume. Before speaking to your landlord, arm yourself with facts and figures about your business. You should be able to provide your landlord with the financial picture of how Covid-19 has impacted on your business. For example, for a retailer these figures should include statistics on footfall, customer numbers and sales comparable to the same period in 2019 as well as any projections you have for the remainder of the year (based on current conditions). By giving your landlord the current and projected financial picture, it provides them with the necessary information to consider your proposal and possibly reassure them that the situation is temporary.
- Make an offer – Based on your figures, put a proposal to your landlord as to how you intend to deal with the arrears. In making your proposal consider what rent concessions would work best for your business. There are a number of options here including rent deferral, an allowance for the period that your business was closed, lease extensions or moving from quarterly to monthly payments.
- Added benefit – Review your lease to see if there are any non-financial concessions which you could offer your landlord in exchange for a concession on rent. For example, if you have the benefit of break clause, could you consider relinquishing it or extending the time period before the break is exercised.
- Try and try again – Your first proposal may not be immediately accepted but persistence at this stage will pay dividends and if both landlords and tenants are willing to work together during the pandemic, it can ensure that the parties have a mutually beneficially relationship in the years to come.
- Write it down – Always remember that the payment of rent is a basic obligation of any tenant in a commercial lease agreement and rent arrears means that you are in breach of this obligation. If you and your landlord agree to any changes to your relationship, it is vital that the agreement is reduced to writing so as to avoid any disputes in the future and so that the new arrangements are incorporated into the lease agreement.