Important advice for Landlords as the High Street blood bath continues

 Landlords should be wary agreeing concessions with Tenants, it could lead to unwittingly tying yourself to a lasting agreement.

With the number of high street brands demonstrating just how difficult trading continues to be, Landlord’s cannot be surprised if – or when – they are approached by Tenants asking for assistance.

There are a number of legal considerations for Landlord’s in such a scenario, but practically the Landlord’s first thought has to be what is commercially best. It would make no sense to see a unit become vacant when it has been occupied by an existing tenant for a number of years, unless the unit had particular characteristics that would make a re-letting easy. Landlord’s must therefore be open to some negotiation.

We have seen a number of tenant’s who have asked for flexibility over the terms of a continuing lease. Examples of such concessions range from a simple rent reduction (say 50% over the next 12 months), changing rental payments to monthly (or even weekly) instead of quarterly, through to agreeing caps to service charges or similar expenses that are re-charged to the Tenant by the Landlord.

Landlord’s however must be careful in these situations. If a concession is agreed – take for example a change of rent from quarterly to monthly – then the terms of the lease may have actually be varied owing to the conduct of the parties. The Landlord would have no recourse if it then changed its mind and wanted the rent to revert back to quarterly instead. Landlord’s must also be aware that if the property is subject to a mortgage, then the consent of the bank will probably be needed to any concession – if such consent is not obtained, the terms of the facility will have been breached. A Landlord who has tried to act commercially – and generously – can easily therefore find themselves in a much worse position.

The solution is to ensure that any concessions are set out in a formal side-letter. There is a host of differing opinions academically as to the enforceability of side-letters and their incorporation into the main lease agreement – from our experience though, having a side-letter is an absolute must for any commercial minded Landlord. Not only will it set out precisely what the terms of the concession are, it can also set out any conditions – so for example, in the event the tenant breaches the lease, or perhaps assigns the lease to a third party, the concession can then fall away. For a Landlord who owns a number of properties, the side letter can include confidentiality clauses which would prevent that Tenant from discussing any concessions with third parties.

Additionally, if we have the opportunity of reviewing your lease, it may be that there are also other matters that can be negotiated upon. Say, for example, there is a break clause in favour of the Tenant in the next 12 months or so – a Landlord who has been advised properly could attempt to agree a concession on the basis that the break clause can’t be exercised.

If you are a Landlord who has been approached by a Tenant who is struggling, act now. Do not hesitate to get in touch with our commercial team.