We know that the Covid-19 emergency is creating very challenging trading conditions for both landlords and tenants. As a result of the downturn in trade and the difficult employment conditions created by the current social lockdown, cash flow appears to be tight for tenants. Unfortunately, the first item of expenditure which many tenants are trying to cut, or reduce, is their rent. Hand in hand with this, some tenants will use the crisis as an opportunity to try to limit their outgoings even if they remain financially stable. Whatever the justification, the outlook for landlords remains the same: a number of tenants are requesting rent deferrals or concessions.
It may be that in a number of cases, landlords will be prepared to agree to this deferral. It will often be pragmatic to allow a good tenant under a long-term lease a little forbearance at this point to ensure that they remain in place once matters are back to normal and to ensure that the lease continues to generate income. Similarly, with demand in the market down, it will not always be sensible for landlords to apply too much pressure to tenants to pay rent as and when it falls due, because to do so may lead to tenant insolvency and to a void period further down the line.
Landlords could discuss the following payment options with their tenants depending on the circumstances:
- Suggest that weekly payments of rent are accepted instead of monthly payments;
- Offer a rent discount for a certain period;
- Allow a temporary rent free period;
- Agree a rent deferment so that rent is paid on an agreed later date;
- Agree a payment plan for rent which has been deferred, for instance the deferred rent may be payable on an agreed date in full or spread over instalments; or
- Have regard to the requirements of the amended Protocol when it comes into force.
Anything agreed between landlords and tenants should be formally documented in writing to avoid any temporary concessions becoming permanent variations to the lease and where there are any guarantors, they too should be a party to any such side letter.
The following key points must therefore be addressed:-
- The exact terms which have been agreed should be spelled our clearly in writing, with no ambiguity and with reference to clauses in the tenancy or lease;
- The agreement must make it clear that temporary deferral is just that, temporary and that the payment terms under the tenancy or lease will revert back to the previous contractual position at the expiry of the temporary period;
- Where there is a guarantor any deferral agreement should be entered into in such a way that does not result in the guarantor’s obligations being extinguished.
- The agreement should make it clear that this temporary indulgence by the landlord does not waive or modify any of the other rights under the lease, including the right to sue or forfeit for unpaid rent;
- The agreement should be signed and dated by the tenant.
Of those key points, the first is arguably the most important. Oral agreements are notoriously difficult to rely on after the event. For something as important and as fundamental as payment of rent, it is vital that agreements are documented in writing.
DKLM can assist and advise on the practicalities of a rent deferral arrangement and can also draft written agreements for the parties to sign.
Please contact our Property Litigation department on the details below if you require any further advice in relation to this or any other matter.
Alan Dixon- 0207 549 7895 - A.Dixon@dklm.co.uk;
Michael Adamson- 0207 549 7872 - M.Adamson@dklm.co.uk