Oury Clark Blog

Many tenants, particularly those in the retail sector are seeking temporary side agreements to vary the rental payment provisions under their leases for the duration of the current slow-down. Typically, leases require tenants to pay rent quarterly in advance; in an effort to regulate cash flow in difficult trading conditions, some tenants are seeking to reduce the advance period, usually to a month. For more distressed tenants some landlords are agreeing to reductions in rent, applying the maxim that some rent is better than no rent at all, which could be the effect of a tenant becoming insolvent and the subsequent void that could result.

For landlords, it is important to consider carefully from a commercial perspective any requests to vary rental payments; if the property is mortgaged, particular care needs to be taken to ensure that a rent reduction does not trigger a breach of any of the loan covenants.

It is important for both parties that any agreement to vary the form or quantum of rental payments is properly documented; with regards to rent reductions, documentary evidence will be necessary for a landlord to account for the difference between the headline lease rent and rental income declared to HMRC.

Commercial tenants of a building under a long lease (in excess of 21years) that was formerly a residence, are now entitled by statute to acquire the freehold from the landlord following a case last year. The statutory formula for the price to be paid is calculated by reference to market value, meaning that substantial savings could be made if the procedure is undertaken in a depressed market.

In March 2009 the government announced that it will delay the implementation of the Commercial Rent Arrears Recovery legislation until 2012, meaning that the right to use bailiffs to seize goods from a commercial tenant for non-payment of rent (distress) still remains. There had been concern that implementation this year, as had been discussed, would have prejudiced landlords in the current market.

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Tags: advice, commentry, retail, tenancy

This entry was posted on Wednesday, June 10th, 2009 at 2:10 pm and is filed under Solicitors. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.