Legal Musts for Commercial Landlords and Tenants - A Legal Update

Given the current uncertain and ever-changing position in relation to Coronavirus, this article covers some general points you may wish to consider in regards to any existing lease, whether you are a landlord or a tenant.

Clearly many businesses are now forced to evaluate their position and may look to alter current lease arrangements. Here is how the Commercial Property and Property Disputes Teams at Leathes Prior can assist.

If there is mutual agreement between Landlord and Tenant to change the terms of a Lease

At present with many tenants facing a drop in revenue as a result of the curtailment of normal business activities, the landlord and tenant may have agreed between them for an adjusted rent, payment holidays or other changes to allow the tenant to deal with the short term impact of Coronavirus with a view to business returning to normal levels at a later date. This can, in many instances, be much more cost effective and beneficial in the long term rather than trying to seek alternatives at such an uncertain time.

If you have agreed any amendments that you wish to make to the lease, the Commercial Property Team here at Leathes Prior will be on hand to effect these changes for you in a quick and cost-effective manner. There are two main ways that we can do this for you:-

1. A temporary Side Letter to the Lease

This is to ensure that the arrangements are for the benefit of the existing tenant primarily and to indicate that such changes are to be temporary and will not alter the fundamentals of the lease itself. This is helpful for temporary reductions in rent, rent payment holidays and similar arrangements. We can either prepare or review these documents depending on whether you are contacting us as a landlord or a tenant.

2. Deed of Variation

This would be used if you are envisaging more permanent structural changes to the lease. If you have a longer lease that is registered with HM Land Registry, we can also assist in updating the official records for you.

Exiting a Lease

In many instances, tenants will be unwilling or unable to continue with their lease and may not be able to reach agreement with their landlord to continue the business relationship going forward. In these circumstances, the tenant may be able to use existing provisions in the lease which allow for it to be terminated early such as, for example, break clauses, or alternatively the parties can negotiate an early surrender.

Many commercial leases come with break provisions, so if you need advice and assistance in respect of serving notice on your landlord to invoke the break clause, and you want to ensure that the break successfully activates, please do contact our Property Disputes Team and they can assist you with this.

We can also advise either the landlord or the tenant if it is mutually agreed that the lease is going to be surrendered and the property returned to the landlord. Whilst this would tend not to be used that often in normal times, a negotiated surrender is often the best way of limiting the losses of both parties, and it will normally resolve the situation quickly allowing both the landlord and the tenant to move on without getting involved in protracted and costly litigation.

Finally, if you are a landlord or a tenant and there is the very real possibility that the tenant may cease trading from the property and consequently be at risk from insolvency, you may find that the property could be abandoned and left empty. Our Property Disputes Team can advise on the ramifications from both the landlord’s and the tenant‘s perspective in this respect. We can also look at ways to mitigate the risk by negotiating a solution which can be documented in one of the ways set out above.

In the circumstances, both landlords and tenants should consider their position carefully and take legal advice at the earliest opportunity. Due to the current restrictions on travel and contact, this will invariably add delay to the legal process so the sooner you act the better chance you stand to resolve any lease issues quickly and to the satisfaction of both parties.

If you have any questions regarding the above feel feel to contact our Commerical Property or Property Disputes Teams by email or by calling 01603 610911.

Note: The content of this article is for general information only and does not constitute legal advice. Specific legal advice should be taken in any specific circumstance.