The tenant can’t pay the rent – landlords, what are your options?

The March quarter day is Wednesday 25 March 2020.

In view of the economic difficulties which the coronavirus shutdown is causing, many tenants may struggle to find the rent. They may therefore ask their landlord for help. Certainly this is a time when productive dialogue needs to occur between landlords and tenants. So what are your options if your tenant contacts you?

Paying the rent monthly

It may help a tenant’s cash flow if you agree they can pay the rent monthly instead of quarterly. It is down to you to agree with the tenant for how long this arrangement lasts. So far we have seen examples of landlords allowing their tenants to pay rent on a monthly basis for a six month period beginning on Wednesday and ending on the autumn quarter day 29 September 2020.  

If, come the end of September, the economy has not improved, the landlord can renew the concession for a further period.

Postponing the quarter’s rent due on 25 March

The other approach is for the landlord to forgo the rent for this coming quarter. We have seen an example of this though the landlord in that instance wants the tenant to pay the March quarter’s rent by instalments during the 12 months beginning on the quarter day of 24 June 2020.

If I want to help my tenant how do I go about doing this?

You need to put an offer to the tenant setting out the terms on which you are willing to help. The first thing to decide is whether you want to cancel, postpone or reduce the rent for the March quarter or agree to the tenant paying it in monthly instalments. Other points you need to consider when putting a proposal to a tenant are:

• Do you want to limit the concession to certain tenants eg leisure and retail or premises where the rateable value does not exceed a certain level.
• The arrangement should benefit the current tenant and not any future tenant.
• When should the concession end?
• If postponing the March payment do you want the tenant to pay it later on in the year eg the 12/24 months beginning on the date when the tenant has to recommence paying the quarter’s rent in full, likely to be either the June or September quarter day; if so how will the payment of the arrears be spread over the 12/24 months - monthly or quarterly; what happens if the lease ends before any 12/24 months period.
• VAT is still payable on any monthly rental payments.
• Does the tenant make other payments eg rent, insurance or service charge. Should the concession cover these as well as the annual rent?
• Are there any circumstances where you want to terminate the arrangement eg if the tenant breaches other terms of the lease, falls into insolvency or fails to stick to the agreement you have with them.
• Does the tenant have a guarantor who has guaranteed that the tenant will perform their obligations in the lease; if so you usually need to get the guarantor to agree to the arrangement.

How do I go about documenting whatever I agree with my tenants?

You will need a letter signed by you and the tenant which records what you have agreed with your tenant. This will be a legal document binding on you and the tenant. The matter can be dealt with by email.  

What if my tenant is currently in breach of one of their obligations in the lease?

Whether you can give the tenant a concession on paying the March quarter’s rent depends on what you want to do about the tenant’s existing breach of covenant.  A commercial lease will contain a forfeiture clause. This gives the landlord the right to end the lease in cases where a tenant has failed to perform their obligations in the lease or has become insolvent. However, the law provides various ways in which a landlord can lose the right to end the lease in these circumstances. One of these is called a “waiver of forfeiture”. This is where the landlord wants to end the lease because the tenant is in breach but the landlord does something such as continuing to accept rent from the tenant.  

So if you want to get rid of your tenant by forfeiting the lease, you can’t accept any rent from the tenant. It follows that you can’t agree to any rental concession as to how the tenant pays rent. However, at the present time, many landlords are thinking how they can keep their tenants rather than get rid of them, and a rental concession is a way in which a landlord can help.

What happens if as well as being a landlord I am also a tenant myself?

Before offering any help to your tenant you must first talk to your landlord to see if they are willing to help you.

Further advice

If you need further advice on this topic, please get in touch with your normal contact at Mills & Reeve.