Commercial leases – how can we ease the financial pain of Covid-19?

With many businesses already closed and many more likely to follow suit in the coming days, we explore what you can do to ease the financial pain of Covid-19.

Annual rent payments

Many commercial leases oblige tenants to pay their annual rent (and other lease sums e.g. service charges) by four equal payments on the usual quarter days (March 25, June 24, September 29 and December 25).

There is little doubt that the Covid-19 pandemic will last months rather than weeks and many commercial landlords and tenants will be aware of the March quarter day this week.

The worst thing that a commercial landlord can do in this crisis is to pretend that his/her commercial tenant, who has closed his/her shop/pub/restaurant/gym (the list goes on) to stop the spread of Covid-19 and who has no revenue for the foreseeable future, will be able to continue to pay rents without some form of assistance.

The worst thing that a tenant can do in this crisis is to stick their head in the sand and not admit that paying rent in the coming months is going to be a huge struggle, even with the relaxing of business rates (for some businesses) and other financial measures announced by the Government.

Two things are clear. Human beings hate uncertainty. Human beings also love to help others in need and we all need to help each other survive in more ways than one.

Rent concessions

As the BT campaign once said, it’s good to talk. Pick up the phone and speak to your landlords, your tenants and your legal advisors about whether you can agree a monthly rent or some other rent concession over the coming months.

Rent concessions can help with cash flow (for both landlords and tenants) and there is no shame in asking for help. We need as many people as possible to make it out of the other side of this pandemic.

If you are agreeing to a concession in this way, please seek legal advice to ensure that the terms are properly documented.

Monthly rent side letters can be prepared quickly and will make it clear that the concession is a temporary waiver of the terms of the lease and does not act as a variation, that it is personal to the parties and that it will not be binding on successors in title.

Less common in these circumstances (although the parties are free to agree to any variation that they would like, as long as it is done properly) is a formal variation of a lease by way of a deed of variation, as a landlord will mostly likely wish to return to quarterly rent payments in better times.