Advice for agreeing rent payment holidays in relation to Covid-19

3rd April 2020

The recent Coronavirus Act restricts the ability for landlords to forfeit a commercial lease for non-payment of rent. This still leaves the issue of rent accruing during this period which begs the question: what happens once this period ends?

We are starting to see landlords and tenants look for a constructive ways to preserve relationships and for landlords to give tenants breathing space especially where they are unable to open and trade.

One way is for the landlord to give the tenant an additional rent free period, perhaps for 3 or 6 months, in exchange for the tenant agreeing to extend their lease by the same period. Whilst this may not work in all circumstances, this may be a quick and simple fix for parties.

Can you vary the term in the lease?

If only it was so simple.

Unfortunately if you vary your lease to increase the length of the term, the lease will be deemed to have been surrendered and a new lease granted in its place.

Increasing the length of the term is seen as such a fundamental variation that it is inconsistent with the continuation of the existing lease. This can happen without the parties intending it or realising the effect on the existing lease and brings a number of potential pitfalls:

  • the new lease will not be contracted out
  • guarantors will be released
  • the tenant may have to pay additional stamp duty land tax
  • the tenant will need to register the new lease

How to I avoid the pitfalls?

It will depend on your circumstances and the specifics of your lease. However, the likely solution is for you and your tenant/landlord to enter into:

  • a reversionary lease that takes effect after the exiting lease expires. The terms will mirror those of your existing lease
  • a deed of variation to vary the existing lease to record the rent free period and ensure that the existing lease and the new lease are interlinked

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