Landlords must communicate with tenants over coronavirus rent negotiations
PUBLISHED: 15:00 29 September 2020
Commercial landlords may need to be flexible with their tenants when it comes to rent negotiations during the pandemic, says Nick Williams, partner and commercial management and valuation surveyor at Arnolds Keys
The government has extended its emergency measures to protect commercial tenants, which were due to expire on September 30, until the end of the year. But this doesn’t alter the fact that some tenants are struggling to pay rent.
While the picture is varied, the Covid-19 crisis has certainly impacted on the ability of commercial occupiers to pay their rent – either because they have been trading at a reduced level of activity or they have not been able to trade at all. For landlords whose tenants are struggling to pay, it is vital to engage. Early dialogue and regular communication are essential.
There are a number of options which landlords might consider. These include deferring the rent, with payments settled after an agreed period of time. Obviously, this works better when there is still enough time left on the lease for a payment plan to be viable – and landlords must be confident that the business is fundamentally sound and will be able to catch up on arrears when they start trading fully again.
Another option is to offer a rent holiday in exchange for extending the period of the lease. The issues for landlords to think about here include the fact that they will not be able to recover the lost rent from the holiday period. Furthermore, if the occupier is in financial difficulty, locking them into a prolonged lease might not be the best idea.
So, should landlords reduce rents? There is some uncertainty about how rents will be affected in the medium term, especially in the office, retail and leisure markets. For the landlord it is usually better to consider options such as a rent holiday or deferral rather than reducing the rent, as this could have an impact at the time of future rent reviews.
Ensuring you have high-quality, prospering businesses occupying your property is always important, but it has never been as vital because any voids may be increasingly difficult to re-let, and doing so may involve re-assessing rent expectations. Anyone letting a commercial property in the current climate needs to find a good balance between maximising rental yield and ensuring rent security. Asking for rent deposits (rather than personal guarantees) is an increasingly good move.
Good tenants know that they are in a strong position to negotiate and may ask for flexibility in leases, including break clauses. Landlords may have to be open to such demands in order to secure high-quality tenants.
Communication is key to negotiate fairly and find a solution which benefits both parties. Don’t wait for when the rent is due: start engaging as soon as it becomes clear that there is a problem. Landlords need to be flexible, but tenants also need to demonstrate that they are committed to fulfilling their part of the lease, even if they are experiencing short-term trading difficulties because of coronavirus.
For more information, please visit www.arnoldskeys.com
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