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commercial rent

By Elizabeth Turner

May 19th, 2020

Managing the June quarter commercial rent

The June quarter rent is currently due six days prior to the end of the moratorium on forfeiture and landlords taking other action. Even if the UK has emerged from lockdown by the end of June, many commercial tenants will have trouble paying the rent due in respect of the March and June quarter dates.

Landlords and tenants need to work together to preserve the longevity of their businesses and investments, without landlords facing the uncertainty of empty premises and without tenants risking being evicted once the current moratorium is lifted.

 

The June quarter rent is currently due six days prior to the end of the moratorium on forfeiture and landlords taking other action (including presenting winding up petitions and exercising commercial rent arrears recovery) on 30 June. 

 
Even if the UK has emerged from lockdown by the end of June, which is far from clear and even if the UK meets the tests set down by the Prime Minister, many tenants will have trouble paying the rent due in respect of the March and June quarter dates. Landlords and tenants will need to manage the situation carefully to preserve the longevity of their businesses and investment.

 
Our advice to landlords and tenants remains to collaborate and approach the non payment issues as early as possible.

If the tenant is a retailer, it is likely that even in a best case scenario, trading will only tentatively recommence on or after 1 June 2020, which will impact cash flow. It is important to set a realistic timetable for collection and repayment of the outstanding rent and for both parties to consider whether concessions could be granted from both sides.

 
Could a staged rent repayment be offered in exchange for waiving a forthcoming break date or elongating the term of the lease , subject to tenant covenant strength? What timeframe are the parties able to commit to in respect of repayment of the March and June quarter date? How important is it to retain the existing tenant in the premises over the next 12 months to three years?

 
If parties do not take early steps to negotiate and understand the nature of the landscape, then it will be difficult for both parties to take informed decisions as to long term plans to to the future of the premsies. In particular, thought needs to be given to how the situation is going to look in twelve months’ time and whether, through co-operation, both parties can work through the situation; without landlords needing to face the uncertainty of empty premises and without tenants risking being evicted once the current moratorium is lifted.

 
Here are five recommendations to help landlords and tenants manage the situation:

1.    Make contact with your landlord or tenant if you haven’t done so already. Be as open as possible about the trading position of your business and when you expect rent to be paid or, if a tenant, when you expect to be in a position to pay any outstanding rent.

 
2.    Understand the nature of your obligations under each lease. Leases are, generally speaking, bespoke rather than standard documents and vary in terms of when rent has to be paid and when payments for service charge or insurance premiums are due. 

 
3.    Consider your long term plans for the premises, including the remaining term of the lease and the timing of any break options. Review your plans for continuing to trade from these premises or, from a landlord’s perspective, whether there is a benefit from continuing to lease the premises to the existing tenant.

 
4.    Consider your cash flow position over the next twelve months if possible and the likely position of your business in twelve months if restrictions are lifted. 

 
5.    Our advice throughout the pandemic for both landlords and tenants is to continue to collaborate to reach a solution for the short – medium term wherever possible.
 

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