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Rental Payments – No Quarter?Rental Payments – No Quarter

» Posted on: 16 March 2009
» Posted by: David Bailey
» Service area: Commercial Property Litigation

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As the credit crunch continues to squeeze businesses’ cash flow, commercial tenants are starting to look at ways to reduce one of their main outgoings – rent. In most commercial leases rent is paid quarterly in advance. However, it is now becoming common for tenants to request that their landlords accept monthly rental payments in advance. Should landlords accept such payments?

Deal or no deal?

Of course, tenants’ obligations are (usually!) set out in a written lease. Landlords have no duty to agree to any variation of the terms. Before agreeing to a variation in the rental payments, Landlords should consider the following issues:

  • Can the Landlord afford to accept monthly payments? Landlords may not be able to manage without quarterly rental payments in advance since they need this money to settle their own liabilities (including their own mortgage).
  • Is the tenant in question in financial difficulties? Although the current economic climate is having an adverse impact on most businesses, not all businesses are suffering. If a tenant approaches a Landlord requesting that rent be paid on a monthly basis there is no reason why a landlord cannot ask a tenant to supply financial information to demonstrate that it is in difficulties.
  • Any agreement for varying the rent must be carefully documented (eg by a separate deed or “side letter”). In particular, any documentation must set out for how long the arrangement will last / circumstances in which the arrangement will revert to the position under the Lease. If landlords do not do this there is a real risk that they will be deemed to have varied the terms of the lease (once and for all).
  • If there are previous tenants or guarantors landlords must ensure that these are not inadvertently let off the hook. The important point to note is that guarantors can be released from liability if the lease is varied without their agreement.
  • Landlords need to also consider how any rental variation will affect any break clause (which usually requires that a tenant must strictly comply with the terms of the lease) plus any rent review.

Of course, from a Tenant’s point of view, there would appear to be little to lose by requesting an agreement from the Landlord to accept monthly rental payments and potential gains to be made if their Landlord doesn’t carefully consider the above points.

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