NEW LEASE RULES DO NOT MEAN A RENT HOLIDAY

A commercial property lease is a legally binding agreement entered into in good faith, and it obligates the tenant to pay the rent that is due, in return for occupying the building.

In normal times, that statement would be unremarkable, and simply articulating the obvious.  But these are not normal times, of course, and many of the principles on which the commercial property market is built appear to be being widely set aside.

Last week the government changed the law so that landlords – already unable to force the forfeiture of leases due to non-payment of rent until at least 30^th June – can’t use other methods such as statutory demands and winding up orders to recover unpaid rent.

Some commentators have decided that this means tenants have in effect been given a three month rent holiday, and we hear examples of occupiers announcing unilaterally that they are simply not going to pay rent as it falls due.

It’s true that businesses which are not trading at all, or whose income has been severely impacted by the crisis, may be struggling to find the money to pay what is due.  But landlords are businesses too, and they rely on rental payments to pay their own costs.  Simply withholding the rent just passes the problem on.

It is worth saying as well that when rent is not paid, the obligation to do so hasn’t gone away.  Once the crisis is over, and things returns to normal, tenants could be facing immediate demands for overdue payments, which could jeopardise their ability to get back on their feet.

This is why dialogue is vital.  Engaging with your landlord to try and find a pragmatic way forward is the answer.  Equally, landlords are going to have to think long-term; being heavy-handed in a way which will risk the long-term future of their tenants is hardly going to help.  Finding creative solutions, such as offering a rent holiday in exchange for an extension of the lease period, is going to be necessary.

It is worth observing that that if a business was good in 2019, the chances are it will be good again in 2021.  Avoiding knee-jerk reactions in the short-term – by landlords or tenants – will be the key to making that statement come true.

Guy Gowing