Insights into Commercial Landlord & Tenant Negotiations: What To Do in the Current Climate
There has been a number of discussions recently about the relationship between landlords and tenants and how in the current climate negotiations should be handled. Here we share our thoughts on this crucial subject.
We have been involved in many negotiations acting on behalf of clients who took offices in good faith yet now find themselves under immense pressure due to COVID-19.
This is not just about will we use offices again. We will, we are – it will evolve. This is about getting through the next 3-12 months.
Firstly, what we have found is that tenants do want to pay the rent, they do want to recover from this period and move forward. Some clients have benefitted from this period as a downturn has led to more opportunity. Now is the time for real opportunity and the creativity that has been shown during this time has been fantastic.
It seems time is a great healer – observations I have seen and heard about previous recessions:
“Oh 1987 Stock Market crash was only a few days” – it wasn’t.
“2001 Twin Towers – oh that was a few months and the travel industry recovered” – no, many thought the world was going to blow itself up.
“2008 & Lehman – oh that only affected the financial services” – no, it affected all of us and many thought the world was going to sink into bankruptcy.
Each time when the storm hit, it was unlike anything we had seen before. I have no doubt within 5 years we will look back at the current crisis and play it down. It is human nature. It does not belittle or disguise what has happened these past few months.
Secondly, absolutely, landlords have a genuine reason to collect the rent; be it on behalf of a pension fund, investor – any number of reasons. It affects the general public if income is not collected. We have seen some agents look to really screw landlords down and use this period as the start of a vendetta against landlords. Most landlords are providing a product that you, the tenant want to occupy. The market will decide what goes up or down. We as advisers have seen tenants benefit over the years, but pay higher in others, simply because of supply and demand.
As a firm, we designed a method where a tenant can benefit from their lease. This has worked well.
I have been on several webinars with some of the top law firms in the world – the contract is the contract – there is no way out of it; it is what makes the British property system in many respects so good – there is a legal structure, everything is in writing and whilst clauses can be interpreted different ways – the courts decide.
The key to this period is to find a position where both landlord and tenant can achieve – whilst the contract says one thing – the reality of COVID-19 can dictate another.
Every tenant should bear in mind something quite significant that has been missed – most funds when buying or selling buildings over many years have benefitted from a topping up of rent on vacant floors. Simply by topping up a rent on a vacant floor, from selling landlord to a purchaser, means the price can rise X times – billions of £’s have benefitted both seller and purchaser without you the tenant knowing about it. It is a trick of the investment value. It is common and it works.
Landlords have to work with their tenants. I am stunned at how many landlords have palmed some clients off to managing agents and asset managers – leading them a merry dance – it has created anxiety and negativity.
Most landlords and representatives have been fantastic – they have shown that reputation and respect are worth more than any contract. In these instances, we have agreed a way forward and all parties are happy. That is the way it should be.
- Be open – show accounts, trading history and recent management accounts. Explain how you have used furlough, government loans and any other assistance. Talk about the history of your business, your ambitions and the way forward.
- Do not agree to defer rent unless the deferral starts repayment from June next year and is spread over 24+ months. 12 months is not enough. Starting in September is too soon.
- Try and use your lease as an asset – extend if necessary by the amount of deferral you have been given. Use any future break clause or bring forward any future rent-free period.
- Try and agree discounted rent 50% from September to March, 25% from March.
- Use your deposit towards any payment – that is what it is there for. It may need to be topped up in accordance with the rent deposit agreement – again, that can be negotiated.
- Work towards any way that you can get through these next 3-12 months.
Landlords who do not work with their tenants on a case-by-case basis will lose out both financially and reputationally. Both are as valuable as each other.
We are now seeing shoots of recovery. Three major investment deals have been completed in the last week in Mayfair and several in Clerkenwell. Some fantastic office agency deals have completed. Never forget that London with 9 million people living within a small area creates demand where supply is limited.
If we can be of any assistance with any negotiations at this point, please let us know. All discussions will be in the strictest of confidence.