Coping Tips For Hard Times

26 May 2009

In times of financial uncertainty with businesses struggling to pay bills, landlords and tenants need to find coping mechanisms.

Andrew Gough, partner and head of commercial property at leading regional law firm Furley Page, says it’s a question of give and take.

He explains: “A landlord won’t want to forfeit a lease and have an empty property if short term measures can be negotiated to help a tenant through a difficult patch. By the same token, a tenant with cash flow problems but confident of the long-term future of his business will be looking for flexibility if this helps. If not confident, he will want to dispose of the property as quickly as possible.”

Andrew suggests some options:

• Negotiate payment of rent on a monthly basis rather than quarterly in advance. (You’ll be in good company. The British Retail Consortium first called for landlords to accept rents monthly back in 2006 with the British Property Federation supporting the move in 2008.) The downside? It increases the administrative burden for the landlord
• Rent suspension where the tenant remains in possession of the property, clocking up the debt owed.  The downside? If he becomes insolvent and goes into administration the landlord may be an unsecured creditor for a much greater sum. He can’t sue for rent, send in the bailiffs or forfeit the lease without the administrators’ consent or a court order
• Assign the lease which generally needs the landlord’s consent. From the tenant’s position time may be of the essence so he should prepare any application with as much detail as possible.  The landlord is required by statute to consider an application within a reasonable time and the tenant can sue the landlord for damages if he fails to do so or unreasonably refuses, or withholds, consent. If you decide on this option it’s worth considering:

 - providing an information pack on the assignee’s financial ability. This needs to include a bank and trading reference, three year accounts for an existing business and information on the business trading record

 - if it’s a new business the assignee may have to bite the bullet and offer a guarantee or rent deposit. He must also provide bank references for the named guarantor. A landlord is not obliged to come back with a counter offer and a request for a guarantor if he feels the assignee is not of sufficient financial standing. Making the offer up front requires the landlord to make an immediate decision. 

- ensuring you can meet all the other lease preconditions before an assignment is permitted.

• Underletting, if permitted. The same steps should be taken as for an assignment. The tenant who is sub-letting may want the comfort of a guarantor but this needn’t be offered to the head landlord. However, the underlease may have to comply with specific provisions such as the exclusion from security or tenure – or the stipulation that the rents are the same as the rent of the head lease. You will have to meet these provisions even if you think the landlord is being unreasonable requesting them. There are ways of getting round the requirement to underlet at the same rent as in the head lease but these have to be properly documented and disclosed. The good news is that several major landlords have announce that they will waive the requirement as long as the rent is at least the level of the market rents at the time of letting.

For further information contact Andrew Gough on 01227 763939.
 

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