Commercial Tenants - Negotiating Covid 19 Concessions

Having initiated a number of approaches on behalf of clients seeking rent reductions/deferrals during the Covid 19 crisis, our recent experiences provide some genuine reassurance to tenants that commercial landlords are keen (if cautious) to support their commercial tenants in the current climate in cases of genuine need.

In the light of this experience, we set out below some key do’s and dont’s in preparation for those discussions.

First, DO:

• be proactive – landlord will generally only look at your circumstances if you ask for help, and will not initiate discussion
• be ready to recognise that professional and institutional landlords have their own pressures and investors to take into account: a decision to help needs justification, with every tenant being looked at as an individual case
• expect to clearly demonstrate your financial difficulties; have an impact statement to hand with supporting evidence, including total visibility of their management accounts
• if your issue is one of cash flow only, most landlords will prefer to see payment plans/rent deferral to ease the burden initially, rather than forgiving rental payments. This may alter over time, but for now, this is a recurrent theme
• illustrate or be prepared to agree that no dividend or similar will be payable to the owners or investors of the business for the duration of any rent concession, or to agree how and why this is essential
• be ready to provide confirmation you have sought relief from Business Rates (or other available Government support) and to provide evidence of the application and response.

Secondly, the DON’T’S!

• don’t expect the Landlord to readily accept the sole burden of support - many landlord are seeking evidence that tenants have spread the burden across other creditors including their suppliers, HMRC and their banks;
• commence discussions, if you have business interruption insurance, without first having approached your own insurers or brokers, and be ready to provide evidence of what cover they have and what their insurers response to the crisis is;
• baulk at answering detailed questions about your business and the reasonable steps you have taken so far to mitigate all relevant costs in your business, including the extent of furloughing of staff. Openness to dialogue, and willingness to demonstrate that you have a sharp business-like and reliable focus on your way through your current difficulties, are key.

Previous recessions in the property market have consistently re-inforced how keen landlord are generally to keep their solvent tenants in occupation if they can;  empty space, resumption of rating liabilities, irrecoverable service charge costs and rent voids/reletting costs are all a consequence for landlord who lose a viable tenant.

There may be creative ways for tenants (of suitable covenant strength or business history) to negotiate concessions, for example, if they are willing to extend leases or remove break clauses from their existing leases.

If you would like clarification of anything in this note or would like help negotiating change to your existing contractual arrangements, please get in contact.