Impact Of Covid 19 On Both Landlords & Tenants
In order to survive the economic impact on businesses, both landlords and tenants should enter dialogue as early as possible when considering re-gearing their existing lease arrangements or when entering discussions for rent review or lease renewal. This will be beneficial to both parties.
Lease regear ~ This could consider a number of elements such as rent, assignment and flexibility, change of use, removal of breaks and such like. Our professional team are able to advise with respect to lease regear or reversionary lease arrangements particularly if the current lease expires in the near future. A reversionary lease could be negotiated in return for a reduction in rent for the remaining term in return for completion of a formal reversionary lease at market rent, thus enhancing the investment value.
Rent reviews ~ Landlords keen to instigate outstanding rent reviews are now taking alternative approaches relating to increases in rent and back rent over the short term in order to assist struggling tenants, whilst not losing out on opportunity going forward particularly as we move out of the Lockdown restrictions. Some are deferring the implementation of a rent review until some degree of certainty returns to the market. Such delayed actions need careful consideration of the lease and provisions for rent review in order to ensure that time is not of the essence for service of notice and such like. An open market rent review often requires an assumption of a willing tenant and that the premises can be lawfully used for the permitted use thus removing the argument of unlawful use due to Government guidance during the pandemic.
Lease renewal ~ It is beneficial for landlord and tenant to take professional advice before commencing negotiations or serving notices with respect for lease renewal. A surveyor can provide an appraisal of the current market rent and advise on the terms for renewal. This may result in a number of options based on the rent passing. It may be more beneficial for the landlord or tenant to do nothing at present or indeed to serve the maximum or minimum notice period (depending on difference between the passing rent and market rent). An interim rent application may also be recommended.
High Street tenants should consider instigating renewal proceedings as the impact of lockdown is well publicised and visible to all. Within a falling marketplace a tenant may benefit both in the short term and long term from a range of incentives and lower rental expectations following the lifting of restrictions. A section 26 notice could bring such benefits if served on time.
From a landlord’s perspective the advice may be the opposite whereby the maximum 12 month’s notice to terminate the current lease may result in rental growth over the period whilst benefiting from the passing rent in the hope that rents will have stabilised by the time the lease expires.
Dilapidations ~ In addition there is nothing in the Coronavirus Act 2020 or in any government guidance which prevents a landlord from pursuing a dilapidation claim against a tenant in respect of outstanding breaches of covenant when a lease comes to an end.
As experts in lease advisory matters we would welcome any queries you may have about your commercial lease.
For further advice, please contact: Anne Brennan, anne@sibbettgregory.com
