| News & articles |
Downturn creativity for landlords
Mar 24, 2010
Email this article
Printer friendly page
In the present economic climate,
its no surprise that more tenants are defaulting or using break rights
to
terminate their leases. Firms in difficulty will try to restructure in
order to
salvage the remains of a good business rather than sink without trace.
To avoid
being left with expensive, empty properties, landlords may need to adopt
a more
creative approach. Susie Wynne offers
commercial landlords some ideas to consider.
• With pre-pack
administrations now in common use, be prepared to negotiate with administrators
and new companies. Also assess whether a tenant’s situation is temporary or
terminal and the cost implications to you of having an empty property if the
lease is forfeited.
• When an
insolvent tenant could no longer pay the rent, traditionally the landlord would
forfeit the lease. But when new tenants are scarce, you could be left paying
insurance and business rates on an empty building—plus potentially the cost of any
vandalism, squatters or security. By keeping the lease in place and negotiating
a reduced rent or rent-free period, the tenant will be obliged to pay for all
other outgoings relating to the property and to keep it secure and in a good
state of repair.
• Any revised rent payment terms should be for a
definite period of time and should be agreed in writing. It should be made
clear that you are not waiving your right to forfeit the lease in general, and
also that you have full rights to forfeit if the tenant breaches the revised
agreement.
• If you or your managing agents discover that the
tenant has breached the lease, do not send any rent demands or accept any
payment of rent (even if they relate to a period before the breach occurred)
until the new revised agreement is put in place.
• It is
important that you don’t inadvertently lose your rights and remedies under the
lease (including forfeiture) as these may give you a stronger negotiating
position, either with the tenant or any insolvency practitioner who
subsequently becomes involved.
• Instead
of offering a rent reduction or rent-free period, particularly to tenants in
the retail sector, you might vary the rent arrangements in the lease by linking
the payment of rent to the turnover of the business. The rent will
automatically reduce when business is slow, but rise when turnover goes up:
thereby benefiting both parties. There are various ways of calculating a
turnover rent, and we are happy to advise on these.
Plainly, it is vital that
landlords manage their properties proactively and keep in touch with their
tenants. At the first sign of trouble, the landlord is then in a position to
act swiftly to reach a mutually beneficial agreement without compromising his
own ability to take back the property if necessary.
Partner
Susie Wynne is an expert in commercial property law. An ex-City lawyer, her
experience includes portfolio management and investment work for major high
street names, telecommunications sites and large scale property finance. susie.wynne@willans.co.uk