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Practical advice for Landlords and Tenants of commercial property

COVID 19 has left our city centres empty with office workers working from home and staying out of the office, shoppers shopping online with shops closed, restaurants and cafes closed or providing collection only services. As businesses have suffered a dramatic drop in revenue they have looked to reduce overheads in the short term to aid their survival.

One of the big overheads that they have been able to postpone is rent on commercial properties with emergency COVID 19 legislation ensuring that tenants cannot be evicted/leases forfeited for rent arrears.

A number of businesses chose to rely on the legislation and not pay rent on the March quarter day,  and sources suggest less than 20% of commercial rents were collected on the June quarter day.

Sensing the perfect storm that is likely to hit the commercial property market, the Government has stepped in and has provided a new Code of Conduct for the commercial property sector, a non-binding code offering suggestions and solutions to help encourage compromise between landlords and tenants. The Code encourages parties to act with transparency and collaborate on any temporary changes that may help businesses survive. It urges a unified approach and a commitment to the parties to use any Government support to help the business achieve its commitments.

But what options are open to tenants and landlords in relation to commercial property? We examine below some common concerns that have been raised by our clients.

I want out of my lease – can I walk away?

Whether you’re not planning to open your business again, wanting to close a particular site or wanting to switch to a different model that doesn’t require commercial premises, your ability to walk away from your lease will depend on its terms. It is essential that you seek advice and don’t delay; while you may not be paying rent currently the requirement to pay has not gone away, it is simply on hold. Professional advice will help you to understand what is and is not possible. This will help you understand your position when it comes to negotiating with the landlord.

I need less space now – can I give up part of the property I rent?

Similar to the answer to the question above, it depends on the terms of your lease and how willing your landlord is to negotiate with you. If you have delayed paying your rent during the pandemic are you in a position to pay what is due?

How can I make my tenant pay and what do I do if they can’t?

Many landlords just do not know if their tenants will be in a position to settle their arrears. If they can’t landlords will need to understand what options are open to them and be in a position to act quickly. It is crucial that you understand the terms of the lease and the current legislation in relation to remedies you can seek. With lots of the usual remedies being prohibited before 30th September 2020 (statutory demands, winding up petitions, lease forfeitures etc) you may be forced to negotiate with your tenant and consider your own position. You should also consider doing some due diligence on your tenant prior to opening negotiations – are they trading again, have they defaulted on other payments?

I’m worried my company is insolvent – what should I do?

Whether you are a landlord or a tenant, the risk of insolvency in the current climate is very real. While the emergency legislation has been put in place to protect businesses from insolvency, these provisions can’t last forever and business owners need to take stock and work out what the future holds for their business.

In all of these situations you can put yourself in a much better position by obtaining advice from a professional. Our property, litigation and restructuring specialists have been advising commercial clients from a wide range of industries on their future. We provide practical advice to help you decide the way forward.