Commercial Property Focus - February 2009

Paying rent under commercial leases – Can the payment terms be varied?

Retailers are in the main struggling with business in the current climate and would like in some cases to pay rent on a monthly rather than quarterly basis. A question we are often asked at the moment is if a landlord is not keen and has flatly refused such a request whether there is any legal challenge that can be brought.

A Landlord is entitled to insist payments are made in compliance with the provisions in the Lease .Generally the provision in a rack rent lease will be for the tenant to make payments of rent and service charge (plus VAT where appropriate) in advance at quarterly intervals on the usual quarter days. The prospect of a challenge to the requirements of the Lease is remote if not impossible unless there is any argument a tenant may use that the Lease is invalid for some reason. To question the validity of the Lease may be an unwise option as it could result in jeopardising the tenant’s occupancy.

As a result of the current financial climate though it is understandable tenants (and particular retailers) are considering carefully cash flow issues and asking Landlords to accept monthly rather than quarterly payments. This position and such requests can only increase whilst economic conditions worsen.

Where a Landlord is asked to accept monthly payments there may be commercial sense though in doing it to assist the Landlords own cash flow rather than not receive payment at all or run the risk of an empty property and empty rates if a tenant becomes insolvent and a Landlord forfeits (terminates) the Lease.

A tenants bargaining position may also be stronger in a falling market where if a Landlord had terminated and re let its property not only may it be faced with a rental void until the premises where re let but also a re letting at a lower rack rent.

There are potentially other detrimental legal impacts of a Landlord agreeing to accept revised payments in this manner. These issues can though be overcome if the parties co operate together in properly documenting any concession agreed to reflect the economic reality of the positions of the parties to the Lease.

Clive Bleasdale, Partner
Clive.bleasdale@weightmans.com