We are getting numerous enquiries from both landlords and tenants in relation to requests for rental concessions during this Covid 19 pandemic.
Landlords are increasingly being faced with requests for rental payment holidays or other concessions.
Similarly, tenants may be having severe cash flow difficulties, particularly those in the hospitality and leisure sectors, and now all retailers (other than supermarkets and pharmacies) have to close.
It is also common knowledge that lenders are supposed to be giving their borrowers (i.e. landlords) a 3-month mortgage payment holiday.
In the circumstances, what to do? Here is a checklist of things you may wish to consider:
- Evidence of Hardship: Some tenants may be seeking rental concessions as a matter of course. As a landlord, you may wish to see actual evidence of financial hardship before simply agreeing.
- Mortgage payments: Bear in mind that although your mortgage payments may be deferred, ultimately, you will at some point have to pay them as well as any interest on them.
- Form of rental concession: What form of rental concession are you willing to agree? There are various alternatives:
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- Percentage reduction.
- Payment holiday.
- Deferral.
- Change to payment dates and periods (e.g. from quarterly in advance to monthly in advance).
- Combination of the above.
- Formalities: Ideally, whether you are a landlord or a tenant, any change should be formally documented. If you are a tenant, you may wish to seek a variation to the terms of your lease or tenancy. On the other hand, if you are a landlord, you may prefer merely to provide a voluntary concession which can be withdrawn at any time. To avoid unanticipated rights or obligations arising, careful thought is required.
- Guarantors: If the lease or tenancy obligations are guaranteed, it is probably wise that guarantors are also party to any change to avoid them consequently arguing that they are no longer bound.
- Termination of concessions: Consider when and how the concessions may be terminated, e.g.:
(i) On notice
(ii) On any dealings with the lease
(iii) On any breach of the lease terms or the terms of any variation or concession
- Parties to the concession: You may wish to consider whether other parties (e.g. successors in title or assignees) should be bound or have the benefit of the concession, or whether it should be personal to the current landlord and tenant only.
- Time period: You may wish to agree that the concession will automatically come to an end at a certain time. The drawback of this is that if you continue to apply the concession beyond that time, it may amount to a continuing agreement which becomes binding.
- Interest: If payment is deferred or delayed, consider whether interest should be payable and at what rate.
- Rent Review: If a rent review is pending, consider what the effect of any concession will be on the rent review.
We are more than happy to advise you in connection with any of the issues raised above and in helping you to document any variations, concession arrangements or agreements. Please do not hesitate to contact us.