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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.
Copyright 2006 - 2010
Taylors Solicitors
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