With the announcement of a moratorium on evictions, the Prime Minister has encouraged commercial tenants and commercial landlords to sit down, talk to each other and work out arrangements in cases of financial stress caused by the current situation with COVID 19. But what should tenants and landlords be discussing in these meetings?
To assist tenants and landlords in an extremely stressful and uncertain time, we have prepared a checklist of ten things to consider and discuss in these meetings.
1. Is there a force majeure or rent abatement clause in the commercial lease that applies and dictates what happens moving forward? If you are unsure, you should engage a solicitor to review your lease carefully.
2. Is the tenant happy to share details of their financials to help the landlord better understand their circumstances? Is the landlord happy to confirm if a mortgage repayment freeze has been granted by their bank?
3. Is there anyone who has guaranteed the tenant's performance of its obligations under the lease (a "guarantor") who will need to be a party to any agreement reached? If so, you should consider including any guarantor in the discussions or at least keeping them updated, as they will need to be a signatory to any agreement reached.
4. Is the landlord is willing to agree to a rent-free period?
5. Is the landlord willing to put annual rent reviews on hold?
6. If there is a market rent review coming up soon, does the landlord want to vary the lease to push back the date of the market rent review to give the market the opportunity to bounce back?
7. Is the landlord willing to lower the rent? For many landlords, this can be problematic as lowering the rent can devalue their property, causing issues with the landlord's lenders.
8. Is the tenant willing to offer turnover-based rent? By changing from a fixed rent to a rent that is a proportion of revenue, the parties are effectively sharing the risk.
9. Is the tenant willing to release all or part of the bond money to the landlord to help the landlord's cash flow for the time being? Do the parties want to make arrangements for the bond to be topped-up again post-COVID 19?
10. Did the parties enter into an agreement with the landlord's bank when the lease was first entered into and, if so, does that agreement impose obligations on them to obtain the bank's consent to any variation of the terms of the lease. If so, the landlord will need to approach their bank.
Where to from here?
- If an agreement is reached, it is important that you engage a solicitor to record the agreement to ensure that it is legally valid – the last thing anyone wants at the end of this period is more uncertainty and arguments about what was agreed and what happens next.
- All resolutions will be documented by our team in the form of a deed.
- If the original lease is registered with Land Registry Services then the parties may also want to register a formal Variation of Lease with LRS, however this would require the consent of the landlord's bank if the landlord has a mortgage.
If you require any assistance with negotiating variations to your lease or properly documenting variations, please do not hesitate to contact our office on 1800 650 656.
Kenny Spring has put extensive measures in place to ensure that we can continue working through the COVID 19 crisis and delivering the level of service you've come to expect.
As always, our friendly Property and Commercial Team is at the ready to assist you with any leasing enquiries – we're here to help!
Aaron Strickland | Solicitor