Struggling to pay your commercial rent? A Q&A
2019 has been tough on the high street. Jamie’s Italian was one of the high-profile casualties earlier this year. In August, House of Fraser extended its administration for a further 12 months. Debenham’s secured the backing of creditors to go ahead with a company voluntary arrangement (CVA) involving the closure of 50 stores.
So, what if you are struggling to pay your rents, or foresee that you will be unable to pay in the future?
I missed my rent payments – what rights does my landlord have?
This is the worst-case scenario. You will need to check the provisions in the lease.
In commercial leases where you have breached the covenant to pay the rent, your landlord will have the right to forfeit the lease and re-enter the property. This means that your landlord can take back possession of the property through peaceably re-entering the property or by obtaining a court order. The lease document is crucial as it will determine the exact rights that your landlord has in relation to forfeiture; in many cases, a landlord can forfeit as soon as 14 days from a breach. Depending on how much rent is outstanding and whether there have been persistent breaches, you may or may not be able to apply to the court for relief from forfeiture.
A landlord can also withdraw money from any deposit it holds, pursue guarantors, serve a statutory demand or resort to Commercial Rent Arrears Recovery (CRAR).
My rent is up to date, however, I am concerned I will be unable to pay my rent in the near future.
Renegotiate the rent:
Early dialogue with your landlord is essential. If the commercial rental market conditions are poor, it could be very costly for them to lose you as a tenant as your landlord risks not only not receiving any income whilst the property is empty for an indefinite period but also having to pay the rates on the property, and incurring the cost of re-letting it.
Accordingly, there is a chance that the landlord may be willing to come to some kind of agreement with you in relation to your lease if you explain your circumstances and ask for a reduction in your rent or ask for a rent-free period. Any agreement reached should be recorded in a deed of variation or side letter to the lease to avoid any future disputes.
Other options available could be to assign the lease to somebody else or surrender the lease back to your landlord.
Surrender the lease:
A surrender is a consensual agreement between you and your landlord. The landlord is under no obligation to agree to accept a surrender. A landlord may also require the payment of compensation (the payment of a surrender premium) in return to agreeing to you exiting your lease early.
Assign the lease:
You could also assign the lease to a party willing to take the lease from you. This will require the landlord’s permission and payment of their legal fees, and the landlord will need to approve the assignee.
Exercise your break right:
You could see if there is a break clause in your lease and to end your lease in accordance with that break right. It is essential that any break notice is validly served to ensure that the break right is properly exercised and not lost.
Getting legal advice as early as possible will serve you well and there are many pitfalls of trying to deal with matters without getting proper advice and inadvertently finding yourself in a worse position.
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. For advice, get in touch with your usual Greenwoods GRM contact or scroll down to complete our enquiry form.