COVID-19: A guide to managing business leases

Due to the impact of COVID-19, some businesses will be concerned about their ability to continue paying the rent for their premises in the coming months.

In addition to making use of the economic assistance available from the government, businesses could seek to mitigate the impact of reduced profits by attempting to re-negotiate the terms of their leases with their landlords. Landlords may be willing to re-negotiate leases to avoid paying outgoings on empty premises and to maintain some rental income, albeit at potentially reduced rates. In this article, we suggest a number of lease variations that tenants could seek to negotiate with their landlords.

Monthly rent payments

The majority of business leases require tenants to pay rent on a quarterly basis. Negotiating the payment of rent on a monthly basis will increase cash flow for businesses and reduce the likelihood that they will be unable to pay rent at all.

Rent free periods

Businesses could seek to agree reduced rents or a rent payment holiday for an agreed period of time to better enable them to reduce their costs while they apply for financial assistance from the government.

Turnover rents

Businesses could seek to vary their leases so that a certain percentage of the annual rent payable is calculated by reference to the business’ turnover. This would have the effect of reducing the overall annual rent payable in a downturn and would allow the business and their landlord to share the burden of a downturn.

Sharing premises

With lots of employees working from home, some businesses may find that they have entire floors of their premises that are not in use. If that is the case, they could consider obtaining their landlord’s consent to temporarily share their premises with other businesses in a similar position and, in doing so, share the financial burden of their lease.

Subletting premises

Some businesses will have been forced to close their doors entirely. Other businesses, such as supermarkets, will be experiencing increased demand for their goods and would benefit from additional storage space. Businesses with good sized stock rooms and service yards could consider obtaining their landlord’s consent to temporarily sublet part of their premises to supermarkets to enable them to store additional goods to meet increased demand.

If you need assistance with your lease in this difficult time, please contact Neil Mercer.