(co-written by Tamsin Simmonds, Edward Watson and Henry Barker)

In this blog we look at issues landlords and tenants should consider in lieu of the Coronavirus (COVID-19) including deferring obligations in a commercial lease. We also consider the importance of properly documenting any such agreements to avoid costly and unintended consequences. This blog follows on from a recent post that looked at the implications of the Coronavirus Act for Commercial Leases.

Practical issues for landlords and tenants and lease concessions

We give guidance here on some issues we have recently advised landlord and tenant clients on.

Lease term expiry

Is a break date approaching, or contractual expiry due? Whilst a tenant obligation to pay rent may be about to end in these scenarios, certain obligations (i.e. to remove contents and hand the property back in a reasonable state of repair and condition) will extend beyond the term. Physical restrictions on movement may make compliance impossible and the parties should consider how they can practically deal with such issues. Advice should be sought on documenting any agreement that is reached – see below for some tips:

Documenting Concession Agreements

What parties can achieve in terms of a concession will come down to the terms of their existing lease and respective bargaining position.

If, for instance, a tenant has a break date fast approaching and a landlord is keen to keep them in situ then they are likely to secure more favourable terms for a rent deferment – perhaps a permanent decrease or a lengthy period for the concession. In return, a landlord might seek to remove the break altogether, or push it back a few years when the market has hopefully recovered and a new tenant can be found. Contrast this with a tenant who has just signed up to a 10 year lease with a break on the fifth anniversary (or none at all). A tenant in this case is less likely to achieve a permanent or lengthy deferment.

Professional advice in these scenarios can help landlords and tenants understand their respective bargaining strengths and secure them as strong a deal as possible. Legal advisors should then formalise the parties’ intentions in writing to avoid any scope for dispute.

The following points should be considered before drafting any such agreement:

Getting it Wrong

It’s crucial that any agreement is clearly documented in writing to avoid arguments at a later date.

A landlord’s conduct by itself when granting concessions may be taken as a permanent variation of lease terms. This could prevent the landlord recovering the full amount due once the pandemic has ended. Worse still, the variation could apply to any review of the rent, or carry across into the terms of a renewal lease and have a long lasting and unintended effect.

Please email Tamsin Simmonds, Edward Watson or Henry Barker for advice on issues you are experiencing in relation to a commercial tenancy as well as to help document a concession agreement.

Our page “Coronavirus (COVID-19) – Legal advice and guidance” is continually being updated with advice and guidance as and when updates come in from Government or other regulatory bodies.