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How to negotiate with your commercial landlord during the pandemic

With the government announcing an extension of the ban on commercial evictions until 30 June, Chris Barkley, senior associate, real estate, at London law firm Goodman Derrick LLP, offers tips for travel agency tenants on negotiating with landlords on rental arrears

TRFBLIWA

It has been an extremely challenging year for both landlords and tenants alike, and the already vulnerable high street has been particularly hard hit by the pandemic. The travel sector have seen revenues almost completely dry up, which has put many travel businesses in a position where they are unable to meet their leasehold liabilities.

As the end of the moratorium on possession proceedings looms, there is the potential for an increased strain on landlord and tenant relationships when parties seek to negotiate on any outstanding rental arrears and indeed as regards any relationship going forward.

 

One thing for tenants to bear in mind is that, while they may be tied into watertight leasehold arrangements which do not account for worldwide pandemics, or an industry grinding to a complete standstill – it is still in the interests of most landlords (particularly in this market) to try to retain tenants and find workable solutions to any disputes and indeed continue to develop relationships going forward. Here are my tips for negotiating with commercial landlords during this time.

Chris Barkley, Goodman Derrick LLP
Chris Barkley, Goodman Derrick LLP

Communicate and renegotiate

Rather than just going to ground over outstanding breaches or difficulties making payments, it is generally best to keep lines of communication open. A number of landlords have agreed to "share the pain" during the pandemic and formalised rental reductions or deferrals using side letters to leases to allow tenants some breathing room and flexibility.

 

Most landlords are not going to favour forfeiture or proceedings over a sensible and workable solution for both parties. Inevitably, some landlords will take a hardline approach and there is nothing that can be done about that.

However, whether or not the landlord is willing to negotiate, it is better to communicate. Ignoring correspondence regarding outstanding lease breaches will invariably force landlords to take a litigious approach at some point, which could result in unnecessary costs and anxiety for both parties.

Relieving the strain of cumbersome rents

Look at alternatives if your business needs have changed. Does your current lease allow for underletting or assignment? If so, perhaps a disposal of some or part of your business premises is an option to alleviate some of the costs. You may also be able to negotiate a surrender with your landlord.

 

Admittedly, it would be unusual for a landlord to release a tenant from a lease without payment of a premium. However, you may be able to negotiate a payment which is considerably less than the liabilities that would arise for the entire remaining lease term.

 

Some leases contain either fixed or rolling break dates, so it is also worth checking whether there are any break options which would enable you to exit the arrangement earlier.

Flexibility going forward

Taking a longer term view may be the best way for both parties to come out of negotiations satisfied.

For retail travel agencies, alternatives such as shared office space or working from home are often not appropriate. As such, it is important to find a longer term permanent solution that works for both parties.

 

If you are in a shorter term lease arrangement then agreeing to enter into a reversionary (future) lease to take effect from the expiry of your current lease, effectively extending the term of your occupation, could incentivise the landlord to settle on a lower rent in return for the longer term commitment.

 

Similarly with arrears, it may be that deals can be struck where tenants are able to offer a lease extension. This also gives the landlord some longer term certainty with its own creditors.

 

As the end of the pandemic nears (we hope) and consumers look to spend some of their lockdown savings on travel and other luxuries, landlords who have agreed flexibility with their tenants during this difficult time may well see that loyalty rewarded when the availability of high street units starts to outweigh the number of tenants seeking to occupy them.

TRFBLIWA
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