Contemplating granting your tenant
a rent concession?
Ever more frequently landlords of commercial premises are faced with the
prospect of an insolvent tenant and consequent vacant premises.
Many properties are currently over rented and landlords are likely to have
difficulty in re-letting. Therefore a landlord may be prepared to offer
concessions to a tenant who is struggling to pay rent on the basis that any
tenant is better than no tenant. A landlord may offer the tenant a “rent
holiday”, accept rent at a reduced rate for a period or at more frequent
intervals than the standard quarterly instalments, or if there are already
arrears, may agree that these be repaid over a period of time.
There are, however, potential pitfalls and the landlord would be well served
to seek legal advice before entering into any type of concession agreement.
The landlord must make clear whether the tenant is being let off the hook
permanently in respect of arrears or shortfall or whether he is expected to
repay the sums owing over a specified period of time (often with interest
at an agreed rate).
The agreement should stipulate what happens if the tenant defaults under
the new agreement, preferably that all arrears and interest become
payable immediately. This is especially important if the tenant goes into
liquidation notwithstanding the rental concession, as the landlord will want
to ensure that it can prove in the liquidation for all the arrears.
The effect on any guarantors and previous tenants must also be considered.
A concession agreement will amount to a variation of the existing lease
and unless the guarantors join in the agreement and agree to remain bound,
the landlord risks the guarantors being released from all liability.
Previous tenant’s liability may also come to an end.
Finally, putting in place a rent concession will amount to a waiver of the
right to forfeit for existing breaches of covenant, including non-payment of
rent. Therefore any agreement should contain a provision enabling the
landlord to forfeit for breach of the concession agreement.
As such, a landlord contemplating offering the rental concession,
in whatever form, should consider the potential consequences before taking
any action.
If you would like further information on the content of this newsletter
please contact Dagmara Selwyn-Kuczera on 0207 404 0606 or by email at dselwyn-kuczera@gdlaw.co.uk.
This guide is for general information and interest and should not be relied
upon as providing specific legal advice.
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