How Commercial Tenants Can Negotiate a Rent Reduction for Premises Closed by COVID-19

How Commercial Tenants Can Negotiate a Rent Reduction for Premises Closed by COVID-19
Corporate tenants are now seeking opportunities to mitigate the effects of COVID-19 on their businesses. Some of the avenues being utilized include rent holidays, rent reductions, and monthly as opposed to quarterly rent payment schedules. In some cases, corporate tenants are trying to exit their commercial leases. Many commercial buildings are already empty due to Coronavirus restrictions, especially in the hospitality, retail, and leisure sectors. These businesses are not alone. This article aims to explore the best possible ways for corporate tenants to negotiate a rent reduction for premises closed by COVID-19.

Understanding Your Negotiation Points

Before seeking to negotiate a rent reduction, you may want to have a few negotiation points:

It is important to know that your landlord still has the right to demand the rent due. You can ask for a suspension or waiver of rent for a while. Alternatively, you could ask for a rent reduction e.g. 50% reduction for a fixed period. In case this arrangement is not accepted, you may also try asking for a moratorium of about 3 to 6 months.
Consider asking for the rent to be deferred until a later period. It is important to also note that your lease may attract interest on rents not paid in time, usually at the rate of 4% above the bank base rate. Do not forget to also negotiate this.
Another option to consider may be to see if the rent can be temporarily or permanently converted to a turnover-only rent, so the landlord receives a percentage of the tenant’s turnover or net profits.
Consider paying quarterly rent in arrears if you pay in advance. Alternatively, you can ask to pay monthly to ensure your cash flow is healthy.
Finally, you may consider negotiating a surrender of your lease. This means you will be released from future obligations. This option may attract a premium from the landlord to compensate for future loss of rental.
It is important to note that if you can reach an agreement in principle with your landlord that the agreement is confirmed in writing. The implication of this is that your landlord can not take legal action while you are adhering to the terms of the agreement.

Other Possible Financial Reliefs Available to Tenants of Commercial Premises

Empty rate relief.
Check the terms of your business insurance to see if there is coverage for an event like this.

Conclusion

While there are certain actions that landlords can take against corporate tenants who fail to pay up their leases, it is usually better if both parties can go for a Win-Win situation. By following the above negotiation points, corporate tenants can ensure that there is an agreement with their landlords. It is important to ensure that these agreements are put in writing to ensure their validity and avoid any legal actions.