Author: Melanie Yates
In the current climate some landlords will find their commercial tenants unable to pay their rent. Landlords who foresee problems may wish to take pre-emptive action rather than wait for tenants to get into arrears or, worse, become insolvent. One option is to agree a reduced rent or help the tenant’s cash flow by changing payments from quarterly to monthly. Variations of the lease should be legally recorded and advice taken to ensure that the landlord is still fully protected.
A good tenant paying a reduced rent is likely to be more attractive to a landlord than an empty property especially as landlords must now provide energy performance certificates to prospective new tenants at no charge.
Landlords should also be aware of recent reductions in business rates relief on empty properties. Since April 2008, most commercial premises can only claim 100% relief for the first 3 or 6 months, after which full business rates apply. However, the Government has temporarily increased the threshold at which an empty property becomes liable for business rates to try and relieve the pressure on landlords.
If the landlord has a non-paying tenant, the landlord may forfeit the lease and regain possession of the premises, but this may not be an attractive option in a downturned market. Landlords may be able to pursue former tenants or guarantors and, if the lease is disclaimed, require them to take a new lease. If the landlord holds a rent deposit he may be able to deduct arrears from it. The terms of the legal documents must be studied carefully before action is taken. In this context it is easy to understand how important it is to have proper legal documents in place.
A more controversial option is the landlord’s right to recover arrears by removing and selling the tenant’s goods . The Lord Chancellor is proposing to abolish this right and replace it with a more limited statutory regime .
If the tenant becomes insolvent or enters into administration or a voluntary arrangement, remedies open to the landlord are reduced. The leave of the Court or administrator/liquidator may be required before action can be taken and any current proceedings may be stayed. In these circumstances it is vital that the landlord takes legal advice quickly as there may be only a limited time in which to act.
For further information on commercial leases contact Melanie Yates at Birkett Long on 01206 217332 or email melanie.yates@birkettlong.co.uk
