What help is available from your landlord if your business is in trouble? Taylor Vinters' Simon Murphy explains.
Whether a retailer, an e-retailer or a MegaBox store, space has got to be rented somewhere and business is tough right now. If you are struggling to make the rent, orders are slipping and you’re not sure you are going to make your next payroll, then it’s time to ask what help is available.
What kind of help can you get from your landlord?
Many retailers are facing the pinch, with Game the latest in a long line of high street chains to go into administration. Landlords can sometimes help to prevent their tenants descending into administration if they are prepared to accommodate some realistic requests from the tenant, so as to keep their investment values and occupancy levels up.
The landlord may be prepared to re-gear the lease, if rent levels have fallen. If done on the basis of an exchange of side letters (ie on a personal basis for the current tenant) so that there is no effect on rent review, then this is sometimes an easier pill to swallow for the landlord.
Landlords can be more flexible with tenants concerning improvement works. Where there is an internal only lease with a service charge, significant capital works can be delayed so that payments required of the tenant can be kept to a minimum.
Where underletting of part is prohibited by the lease, but the tenant does not require all of the space, landlords can be persuaded to be more flexible. This works provided that any underletting is excluded from the security of tenure provisions of the landlord and Tenant Act – so that the landlord doesn’t end up with an undesirable tenant at the end of the lease.
If you’re having trouble persuading your landlord to agree to re-gear, it may be appropriate to offer personal guarantees or a rent deposit if you can stretch to it, so that the landlord has some security in relation to the reduced rent. There is simply no point in the Landlord agreeing to a reduced rent from a tenant who does not have the ability to even pay the reduced rent.
The key to all negotiations, as one would expect, is reasonableness. Although landlords are likely to be prepared to be flexible in order to keep their tenants, they are not likely to want to affect their investment value, unless there is some likelihood that the reduced rent will be paid, and that the tenant will remain solvent and will comply with the tenant’s covenants under the lease.
Simon Murphy is a property management partner at Taylor Vinters.