As increasing numbers of people are working from home and businesses close their doors in deserted high streets, rented commercial premises are looking more like a liability than an asset.
So, what can you do to improve your position?
There is some encouraging news. Business rates have been suspended for many businesses in the 2020 – 2021 tax year which will be a significant saving. The government is also introducing a law to prevent landlords evicting some types of commercial tenants for rent arrears until the end of June. It will apply to most business tenancies or sub tenancies, whether your business rents premises in its own name, or occupies business premises that are rented in someone else’s name (eg if they are rented in a company director’s name).
Most very short tenancies for a fixed term of six months or less are not protected. If you rent desks in a shared work space, or occupy a concession area inside larger premises, you are unlikely to be protected – these are usually not tenancies at all but membership schemes or short term licences respectively.
If your tenancy qualifies, your landlord cannot evict you for non-payment of rent until after 30 June. This period might be extended. It does not mean your business cannot be evicted for any reason during this time. Your landlord can still:
- evict you for other reasons, eg if you breach the terms of your tenancy by damaging the property; or
- give you notice to leave under a break clause.
Although it offers some temporary relief for many, this law will not stop your rent and service charge bills accruing. Your landlord can still:
- pursue you for the debt, although the government has announced some temporary protections, eg to prevent companies being wound-up as a result of COVID-19 related debts, sooner or later these restrictions will be lifted; and
- evict you for arrears as soon as this short term legal protection is over, unless you come to an arrangement with them.
If your business is having a tough time or your premises are standing empty due to the coronavirus, talk to your landlord. It is best to speak to them if you can, rather than writing, as you’ll probably need to discuss sensitive matters like the solvency of your business. Here are some of things you could ask for and tips to negotiate for them:
Rent holiday/rent reduction
Check the terms of your tenancy agreement just in case. Unfortunately it is unlikely you are lucky enough to have any clause entitling you to a rent holiday or rent reduction as a result of the coronavirus. Normally rent suspensions only apply if you can’t use your premises because they have been damaged in some way, eg if there has been a fire or a flood.
Do not simply start withholding your rent on the basis that you are not using your premises – this will be a breach of your lease and your landlord will be entitled to come after you for it, charging you for their legal costs as they do so. Negotiation is your best bet here. It will be up to your landlord whether they make allowances for you.
Ending your tenancy
Most commercial tenancy agreements do not have the kind of clause that allows you to get out of it in the event of disaster (you might have heard these referred to as ‘force majeure’ clauses).
Look at what your tenancy agreement says about ending it. You may have a break clause coming up that allows you to give notice early. If you do, take care to follow its instructions exactly or your landlord may be legally entitled to deny that your tenancy has been brought to an end. The timing of the notice is often a particular point of contention, so be organised.
Probably a point for the longer term in the event that your business model changes and you can manage with smaller premises. Check your tenancy agreement. It will likely impose a few restrictions on your ability to sublet, usually requiring you to get your landlord’s agreement first. For more details, see Tenant ending a tenancy.
Try negotiating with your landlord – it is in their interests not to push your business too far if it is in trouble. An insolvent tenant is obviously undesirable and there is no knowing how weak the rental market will be as the current crisis subsides.
Negotiating with your landlord
Legally, you are not likely to be in a great position to make demands, but that does not mean you can’t make a compelling argument. The change in the law that will temporarily protect some businesses from being evicted for rent arrears gives you slightly more leverage, but it is only a small part of the picture. Make sure you get any agreement in writing.
It is in your landlord’s interest to help your business if it is in real difficulty. They will not get much out of an insolvent tenant, and the rental market may not pick up for a long time, so replacing you could be difficult. There is speculation that the global push to homeworking could see a permanent reduction in demand for office space in particular.
Take heart – early reports from China suggest that there has been good cooperation between landlords and tenants to try and get businesses up and running again, especially in the retail sector.
Helen Turnbull is Head of Strategic Development for the Marketplace at FromCounsel, the specialist corporate legal resource trusted by top global law firms and FTSE 100 companies. Before joining FromCounsel in 2021, Helen was Head of Content at Sparqa Legal. Having previously spent 12 years practising as a commercial and property law barrister, Helen regularly contributes her expertise to Sparqa’s blog.