COVID-19 | How business and retail tenants can manage their quarter rent?
COVID-19 | How business and retail tenants can manage their quarter rent?
With a threat of even tighter government restrictions on the movement of people, this is having a major impact on tenants, especially retailers, generating income from a non-existent footfall.
The next quarter rent date is looming, and the impact of coronavirus has been severe. In this webinar, we’ll discuss what tenants can do with their landlords over the next few crucial days to try to save this expenditure.
Please do let us know of future topics that you are interested in, or for more information about our webinars please contact us.
This webinar was recorded back in March 2020 and whilst all the guidance is still relevant the government since the recording has new introduced new measures restricting the use of some recovery options for landlords including the use of stat demands and the use of CRAR. These restrictions are in place until 30th June.
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Hi, I'm Justine Ball a Legal Director here at Shakespeare Martineau. Welcome to today's webinar on how business and Retail tenants can manage the March quarter rent, which is approaching within the next couple of days.
This is a follow up on my first webinar on the impact of the coronavirus on business leases, which if you miss this, you can still listen to on our dedicated resource Hub. Shm a DOT Co dot u k or just contact me directly and I'll send you the link you will see on your screen the you are able to ask questions. So please do get in touch along the way and I can answer as many questions as I can at the end.
Following the government setting out even tighter restrictions on the movement of people and the strongest recommendation of social distancing.
We are seeing less and less people in public places pubs clubs restaurants and gyms are now all closed and many shops and retail outlets are beginning to close all so it's understandably a worrying time for all UK businesses and in particular the Leisure retail events and Hospitality sectors as fall is reduced to near zero and takings are being significantly affected as businesses rely on install spending for income generation even with the sweeping measures that were introduced by the government last week in response to the impact of the coronavirus cash flow is imperative for tenants in this crucial time to stay afloat for the longer term preservation of their businesses the March quarter day is around the corner so this webinar will provide tenants with advice on what they need to be considering now in order to seek to avoid paying the March quarter rent so that they can redirect these much-needed funds to other areas of their business so how can you avoid paying the March quarter rent for many tenants payment of the March quarter rent and the June quarter rent will significantly harm their business at a time when they are seeking long-term viability as a result of this book Shock to the economy as set out in my previous webinar. It is key that tendency to make contact with their landlords immediately in relation to the payment of the March quarter rent. This should be done in writing or initially a call which should then be followed up in writing so that you can evidence a paper trail down the line.
In the first instance tenant should be requesting a rent-free period or a 100% rent concession or rent waiver for at least one quarter to offset the sudden impact of the coronavirus on your businesses. You can then assess the further impacts of the virus over the next quarter to then consider whether you should be requesting the rent free periods.
Be extended to the June quarter asking for a longer 6 to 12 months rent-free period at the outset is unlikely to encourage collaboration, but it's Aspirate a negotiation tenant should be putting forward a proposal that is both reasonable and credible to encourage an agreement.
If the landlord is willing to agree a rent-free period or a hundred percent Renkin session, then this can be documented in a memorandum or side letter. There is a risk to landlord receiving adverse publicity. Should they fail to support tenants at this crucial time? And this may be why we are already seeing landlords agreeing to rent free periods. You may have heard of Argent. There is therefore a real possibility of tens being able to negotiate something similar with landlords if you act now.
Landlords understand the potential alternatives to the refusal of a rent concession at a time where there is a genuine need by their tenants. Laura Ashley has been the first casualty of the retail sector since the coronavirus hit our Shores with it heading for administration if landlords fail to listen to you, then there is a huge risk to them of rising numbers of tenants falling into a form of insolvency, including liquidations administration's and the proposal of cvas.
I do not recommend threatening insolvency If a landlord does not agree to a rent concession, but tenants should highlight there being a risk of this if landlords fail to work with you during this uncertain and dare. I say the word unprecedented time.
Should tenants propose a CVA not only could this negate the payment of any arrears, but the level of future rent also in the event of insolvency landlords are likely to lose money given the likelihood of receiving nothing from the insolvent tenant company the additional time and cost incurred in dealing with insolvency practitioners, the logistics of emptying premises and the effects of having empty promises as I will mention below.
So if landlords want to avoid this and preserve their long-term income, they should be working with you to reach an agreed position and this should be highlighted to them.
It may be that some of your landlords refused to Grant a rent-free period or a hundred percent concession as they themselves may be small businesses. If this is the case an alternative would be to negotiate a partial rent concession or even a rental holiday. This could be where rent is not paid for the next one or two quarters. And then it is amortized over the remaining term of the lease.
Whilst this won't be the ideal position for tenants as businesses will not know when the impact of the coronavirus will return to normal levels. It could be an agreed way forward to provide some immediate much-needed relief for tenants and a way for tenants to work with landlords, which are small businesses themselves.
If you are unable to reach agreement with your landlord either for a rent-free period or rent concession, and the landlord is nevertheless requiring you to The rent on the 25th of March then you should consider the following. Don't pay you could simply not pay the March quarter rent.
This carries the obvious risk of the landlord forfeiting your lease and bringing it to an end by Peaceable re-entry or by Court proceedings. However in the current climate, it seems unlikely that landlords will take full action to terminate your lease.
This is because the landlord would have surrendered the rent that would otherwise be payable for the remaining term of the lease. It would also be required to pay business rates for whatever period the premises remains vacant after any empty promises relief that have been reduced by the government.
after any empty premises relief introduced by the government Depending on the location of the premises it may well be very difficult to read let the premises to another tenant. So landlords could be denying themselves future income further. The valuation of larger assets are affected by the number of empty units. So should there be higher numbers of empty units or premises in centers parades and Outlets this could damage the value of landlords portfolios.
Looking at the risk of litigation against tenants or even guarantors. This will also be lowered a landlord would be unable to effectively utilize cry which is the commercial rent arrears recovery process as the premises in which they could take control of goods are likely to be closed any litigation that is commenced is likely to be delayed further by many months and by which time landlords could be at greater risk of tenant insolvency such as CVS and liquidations.
In light of all this tenant should consider whether they should actually pay the March quarter rent. There is still a risk of action, but it is a balancing exercise and tenants may consider that this risk has been reduced by the impact of the coronavirus of course tenant should consider whether their landlords have any intention to redevelop or take up occupation themselves. So has there been any discussions or suspicions about this in the past? It may be their opportunity to see possession of the premises.
If rent has not been paid, so each of your premises will need to be considered individually.
But what about if you have paid the March quarter rent already tenants, you should still approach your landlords and see if you can get a refund of the rent paid do not just assume because you have already paid the rent. You should let this lie get in touch with your landlord and landlords agents and see whether you can negotiate a payment back to you to cover any essential outgoings. See if any other tenants in your sensor or parade with the same landlord has been granted relief for the March quarter.
Because if so, you should receive a refund like they have been granted a rent waiver.
If a landlord is not willing to refund the rent then kick start negotiations for the June quarter particularly since you've already paid the March quarter And looking at tenant termination you should review your agreements and see whether you are holding over on a business lays that has expired whether it's about to expire or consider license arrangements or if your lease or license contains a tenant break laws. If so tenants could unilaterally seek to serve notice to terminate your agreements and avoid payment of future and you will not need landlords concerned.
However, if you terminate by serving a break no, This it may well have conditions that will need to be strictly met in order to terminate the lease. These will need to be considered further. You may have a liability for dilapidation, 's once the license or lease has been terminated which will also need to be considered. But at least by serving notice you are bringing an end to future liabilities under your lease.
So in a nutshell what do tenants need to do now, and how can we help?
My top action points for tenants now are make immediate contact with your landlord and propose a rent-free period to avoid paying the March quarter rent or if you have paid seek a refund also put it in writing if the initial answer from the landlord is no be persistent and negotiate set out some of the points made in this webinar today and see if you can persuade your landlord to reach an agreement.
Consider all the circumstances and the risks and consider not paying the March quarter end. There will be a period of time before the landlord can physically re-enter or issue proceedings to Forfeit the lease. So there is time to capture the attention of your landlord and you can recommence negotiations to see if an agreed position can be reached.
Check your laces. You may have a tenant break option or be able to terminate the lease or license.
And finally, keep yourself up to date with schemes that are being introduced by the government. The government have already introduced 25,000 pound grants to retail hospitality and Leisure businesses operating from smaller premises with a rateable value of over 15,000 pounds and Below fifty one thousand pounds as well as the coronavirus business Interruption loan scheme.
All UK businesses are currently looking over the precipice into the unknown and now More than ever is the time for landlords and tenants to collaborate in order to preserve the value of their businesses and their working relationships.
So how can we help our real estate disputes team have the scale and expertise to assist your negotiations and make formal approaches to your landlords. But the time to act is now sent to Offshore leases or licenses and we can help you formulate a proposal to your landlords. We can advise you on your termination Provisions how to meet your brake conditions and how to manage any of your applications liability.
If you find that a landlord is taking enforcement action or commencing litigation we can help just get in touch. Thanks to all of you who have joined us today and listen to this webinar about how business and Retail tenants can manage the rent core today. I can see that I have ever had a few questions come through. So I'll answer a couple now.
So the first question is what if a landlord for fits my lease by peaceful re-entry because I failed to pay the March quarter Ren. What should I do?
If the landlord peaceably re-enters you have options to get back into your occupation of the premises, of course, this will depend on whether you actually want to go back into occupation or whether you are happy to accept the forfeiture to avoid having to recommence occupation and continue paying sums pursuant to your lease for the remaining term. However, if it is the case that you do want to get back into occupation, then you can issue Court proceedings for relief from forfeiture.
This means that you can make an application to the court for an order to reinstate your lease. But in order to obtain relief from forfeiture, you will be required to pay the rent sewing and the cost. The landlord has incurred in the relief from forfeiture proceedings. It can take a few months to get back into occupation as the court will need to order relief from forfeiture at a hearing and it could take some months for this to be listed in the current climate.
Alternatively you could seek to engage with the landlord to agree to enter into a new lease on the same terms of the previous lease, but this would be subject to negotiation.
So the final question I have time for is I have a business lease which expires next month and I do not want to remain in the premises. Do I need to serve notice now to vacate? That's a good question. No, you do not need to serve notice to vacate. You can just vacate by the contractual expiry date of your lease as a matter of courtesy you should inform the landlord that you are vacating, but you do not need to give the landlord any set period of notice.
Can just cease trading remove your goods and leave the premises as long as it's before the contractual expiry date. However, if it was the case that your business leads had just expired and you remained an occupation after the contractual expiry date, then you would need to give a period of notice to terminate your lease. But please feel free to contact me to discuss this further. So that concludes the session thank you for listening and for your questions. I will follow up with those I haven't been able to answer today after the session for all.
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