The government released guidance in the summer of 2020 regarding landlord and tenant relationships for commercial properties and the difficulties with tenants paying rent and other due monies in the Covid-19 pandemic.
You can view this here, which is important to relate to when talks between landlords and tenants aren’t going to plan.
From a landlord’s perspective there comes the point when a tenant can assume that a reduced or no rental payment is the norm; from a tenant’s then a landlord can be perceived as still demanding monies that are simply unrealistic.
Therefore, let’s keep this simple and practical.
Here are five main issues in this guidance note that parties can highlight to each other during discussions:
1. The Lease Obligations Still Stick
This guidance, or any other government intervention, has not changed the legal lease contract between parties to pay monies; this is just a voluntary code.
In actual fact, it clearly states that the government has taken over measures to make sure that businesses still make rent and other outgoings.
Government aid through say grants, rates savings, and furlough relief will ease cashflow; plus, including landlords' restrained action against tenant arrears.
Therefore, tenants who can still pay in full should do.
2. Communication and Separate Agreements Are Encouraged
As the code puts it, parties should work collaboratively to find temporary and ideally sustainable arrangements for a shared recovery plan.
In short, get talking to each other to come to a workable payment plan.
And if this can’t be agreed upon, then it suggests a third-party mediator becoming involved
3. Tenants Need to Explain the Situation
Paragraph 20 is key and often overlooked.
If tenants require further rent reductions and help from a landlord, they need to explain why this is so and provide financial information to support this.
This may have to be confidential and more bigger-picture. However, tenants should provide clear reasoning as to why government support is still not fully helping, and the reality of financial turnover and costs.
Practically this should include their accounts or legal advisor to outline in writing and explain what’s realistic short and longer-term.
4. Look at Creative Ways to Help
Paragraph 23 helps list some different ways to agree on reductions over a period of time and basis.
When this is agreed, then clearly confirm everything in writing is essential to explain how this does, or does not, override existing lease rights against arrears.
5. Service Charges & Insurance Premiums are More Important
In the end, this is specifically referred to, with further detail in the RICS advice on service charges during the COVID-19 pandemic.
These actually take priority as non-profit aspects that affect the running of the property.
Landlords must re-assess them and reduce (or increase) as necessary under these situations – and tenants ensure payments still arrive.
Collaboration is Key
This guidance note's gist is for a landlord and tenant to begin a genuine solution to the current pandemic facing us all.
Although the lease obligations are still a contractual duty that has not changed, hopefully, a sensible arrangement can be agreed upon around this.
If one party is starting to take support for granted, then it's helpful to draw on these above pointers and bring everyone back to the table with more certain facts of the situation to hopefully then arrive at a sensible solution.
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