For most small businesses the second biggest overhead after wages is probably the rent. With many businesses shut and employees either working from home or furloughed the rent expense still rolls on! So what can be done?
We act for both landlords and tenants so what we are about to say won’t please our landlord clients! But the reality is that many small businesses won’t get through the next few months without financial help. Borrowing from the bank and the Government will not help small businesses in the long term. The debt has to be repaid and if the business is insolvent the tenant may consider closure as the only credible option.
Landlords may have to decide whether to risk the possibility of their tenant’s business going bust? How much will a void period cost? If 20% of businesses go under over the coming weeks and months (which is what is being forecasted), then how easy will it be to find a new tenant in a recession? A void period could last many months and could cost thousands in lost revenue.
What can tenants do to ease the burden?
Tenants could ask their landlords:
- For monthly rental payment rather than quarterly
- For a “payment holiday” for 3-6 months and suggest that those rental payments are then spread over the following 6 months once all has returned to normal
- For a rent reduction
- Request that the rent is permanently or temporarily converted to a turnover-only basis
- For the rent to be reduced by 50% so both landlord and tenant “share the pain”.
As a landlord do you know how strong your tenant’s business is? Have you spoken to them?
Landlords and tenants must recognise that it makes commercial sense to co-operate with each other at this time. We have already seen one of our landlord clients receive a letter from their tenant asking for a 50% rent reduction. The tenant wrote the following:
“The financial pressure on individuals and companies alike is going to prove fiscally challenging for all over the coming weeks and months. To try and maintain a viable ongoing business relationship, we’re suggesting a 50% reduction in rent, insurance and service charge payments… until the UK Government lifts its restrictions on ‘essential travel’ and ‘social distancing’ which would then allow our colleagues to return to their normal place of work, and we would then be able to use and occupy the premises again.”
Can I be evicted from my business premises?
The government announced that commercial tenants who cannot pay their rent because of COVID-19 will be protected from eviction. The measures outlined in the Coronavirus Bill will mean no business will be forced out of their premises if they miss a payment in the next 3 months. Under s.82 of the bill, the law states that until 30 September 2020, most landlords will not be able to start possession proceedings unless they have given their tenants three-months’ notice.
Once the period for any agreed action has expired, commercial tenants will still be liable for the rent and any refusal could lead to legal action being taken by the landlord.
If you are a tenant who has closed their business premises and the outlook is grim, don’t be afraid to make a bold move to your landlord. Deferring the rent is fine, but a 50% saving on rent is better! If your landlord agrees make sure you get it in writing and check what has been agreed with your solicitor.
Your landlord might not be happy, but they will be a lot less happy if you go under and their premises has to be cleared, redecorated and then rented out with a void period which could run for many months costing them far more in lost revenue than maybe 50% of 3 months’ rent!
If you need to discuss this further please call Mark or Andrew.
The content in this blog is correct as at 03/04/2020. See terms and conditions.