‘A very dangerous game for tenants to play’Apr 07, 2020
by MARTIN EDWARDS Property Disputes Partner, Shakespeare Martineau
AMONG all of the noise around withheld payments, all business tenants – including retailers – must understand that the emergency legislation rushed through by the government does not mean they can avoid paying any rent at all.
The Coronavirus Act means that, for the next three months only, landlords cannot terminate their leases and evict business tenants because they have not paid their rent and any other monies due under the lease.
However, other action – including court proceedings – can still be brought to seek recovery of those rent arrears etc. as a debt against those who simply decide to stop making any further payments.
It is a very dangerous game for tenants to play.
The courts are still operating and landlords can still move to seek recovery of rent arrears etc as a debt from tenants, either directly or by taking action against their guarantors or former tenants. Although landlords cannot now terminate business leases and evict business tenants for non- payment over the next three months, business tenants are still at risk of these other claims and they would be very foolish to assume otherwise.
The best course of action if still for landlords and tenants to have an open conversation.”
News about major retailer tenants withholding all rent payments whatsoever in the hope of forcing negotiations with landlords must be treated with caution. Currently, the best course of action is still for landlords and tenants to have an open conversation regarding how they will pay the coming months’ rent.
Many landlords are already negotiating rent agreements with their business tenants whereby payments are made monthly, rather than quarterly, or allowing ‘rent holidays’. These ‘holidays’ still mean of course that while the tenant’s rent payments are put on hold for this quarter, full payment must still be made over an agreed fixed timeline.
It is also on the basis that all of the other rights and obligations in the lease remain intact.
This is a tough time for all in the retail and commercial property sector but the best advice is to get into these discussions as soon as possible and to try to negotiate a resolution that works for both landlords and tenants, rather than either side throwing down ultimatums.
It is also vital that all agreements are documented clearly and typically by way of side agreements – for example, by letter – otherwise there is a risk that both parties may find they have inadvertently varied their lease which could lead to its own unintended consequences further down the line.