Landlords and tenants – March and June rent quarters

Published by James Hopkirk on 2 April 2020

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Last updated 2 April 2020

Businesses, particularly retail and hospitality businesses, are facing an extraordinary trading landscape. They and their landlords will have had entirely understandable concerns over their ability to meet the 25 March rent quarter and with June quarter looking worse. The government has introduced a restriction on landlords evicting commercial tenants for breaches during the coming three months however this will not extinguish the liability.  Tenants should also note that there will be other options available to landlords to recover ongoing liabilities.

One national landlord is known to have issued demands to all of its tenants who have missed payments, citing its responsibilities to funders and investors.  The landlord could follow these demands with winding up petitions if the liabilities remain outstanding for a further 21 days, but it remains to be seen whether further action will be taken.

What should landlords and their tenants do if they believe they will be unable to meet rent payments? Kreston Reeves offers three pieces of advice.

1. Don’t panic, communicate

The Government has already announced a business rates holiday for the next 12 months for some businesses and assistance with wages during any downtime, and as the coronavirus crisis deepens it is likely businesses and potentially their landlords will be offered further support.

Our first piece of advice to businesses is to not to panic and to open a dialogue with their landlord.

A long-standing tenant with a strong rental covenant is an asset to a landlord. It seems counter intuitive that they would want to evict a such a tenant, particularly if they know that the business holds promise once more normal trading conditions return. Landlords will recognise that the current landscape does not lend itself to finding new tenants.

The British Property Federation which represents landlords has said “…the commercial property industry is committed to supporting its customers who are concerned, through no fault of their own but due to coronavirus, about rent liabilities. Businesses will have immediate relief measures available to them – flexibility around rents and other lease terms could include moving from quarterly to monthly rent payments and providing rent deferrals or payment holidays, depending on individual business’ financial circumstances”.

Landlords and tenants can often reach agreement by being open and honest with each other.

2. Rent holiday

Explore the possibility of a three or six-month rent reduction or holiday. A landlord may see this as a desirable option if it improves the prospect of a trusted tenant seeing out the remainder of their lease. As above, the landlord may not in fact be in a position to take enforcement action even if it was inclined to do so.

If a rent holiday is not an option, a business should look at the liabilities it is facing as a whole and, together with Kreston Reeves, develop a plan to make its cashflow last as long as possible.

Directors must be mindful of their duty to creditors as a whole if the business gets into difficulty.  However, in some circumstances, paying the rent even when other creditors can’t be paid might be sensible option to safeguard the future of a business, which will of course be critical in ensuring that all suppliers and creditors are eventually paid in full.

Each situation needs to be assessed on its commercial merits.

3. Review regularly

Rent should not be seen in isolation of other financial obligations. Yes, the picture may look bleak and the rent may be seen as the most pressing liability but take a deep breath and speak first to the team at Kreston Reeves who can help review the current position. Do not rush into insolvency arrangements. The situation is changing on a daily basis with new challenges and also new messages of support from the Government. Businesses should take the time to consider how these challenges impact their overall strategy and adapt this where necessary.

In these unprecedented times, it clear that the Government is taking every step to safeguard the economy. We are optimistic that through communication and understanding, good businesses and their landlords will be able to come through the current difficulties and thrive again in the future.

For further information and guidance, please get in touch with your usual Kreston Reeves contact or contact me here.

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