How to negotiate a rent reduction or payment delay

MarketFinance April 14, 2020Comments Off on How to negotiate a rent reduction or payment delay

Many businesses are feeling the effects of COVID-19, especially on their cash flow. While there’s support available from the Government to help businesses of all sizes weather this storm, there are delays in actually receiving any cash injection.

You may be looking at ways to cushion the financial blow by reviewing your existing outgoings and liabilities. For many businesses, paying commercial rent for office space or warehouses is a significant cost. But this is also one of the first costs you may be able to cut, especially if social distancing guidelines mean the property is currently standing empty.

While it’s unlikely you can (or should) forfeit your rent completely – even government guarantees only allow you to delay rent payments, not write them off entirely – a reduction in rent or review of your payment agreement may prove vital to your bottom line.

What you need to know before negotiating

A win-win scenario for you and your landlord could seem tricky to manoeuvre but it’s best to agree to terms that help both parties. Finding a mutually suitable solution should be your priority, so communicate proactively and considerately.

Firstly, be aware that if your lease doesn’t have a break clause, your landlord isn’t legally required to offer any rent reduction or termination, regardless of your circumstances. Stay mindful of their rights if you don’t pay rent due without any formal concession. Landlords can claim interest on any withheld rent and also have the right to forfeit your lease. This could go through court proceedings that you’ll have to cover, so don’t act rashly without any discussion.

Although the Government declared a moratorium on lease forfeiture as part of their coronavirus support package, your landlord can still send bailiffs, petition an end to your tenancy or claim for losses in courts if you refuse to pay rent. It’s also likely that you’ve given a deposit, so any underpaid rent that hasn’t been agreed can be deducted from this. You’ll then have to pay into the deposit against the amount withdrawn anyway, which can go to court.

What can you offer?

Don’t despair, there are reasons why your landlord may want to cooperate with you. It’s in both of your interests to stay on good terms: less rent is better than no rent. And in the current climate, it’s not that likely your landlord will find another business to take over the lease.

Asking for a reduction is more likely to work if you can offer something else on top. Are you willing to extend your lease, for example? If your lease renewal is secured, your landlord will save time and money in the future by not looking for new tenants – a process which always carries a little risk. An empty commercial property costs landlords a lot in insurance, business rates and debt recovery fees.

Don’t forget that they need you right now, and will be suffering too if all their tenants are at risk of forfeiting. Use this opportunity to engage in courteous discussions that may lead to favourable outcomes.

What can you reasonably ask for?

When you speak to your landlord about your financial issues, be open to different solutions. Showing that you understand their circumstances and that you’re willing to work with them to find a favourable result for you both will put you at an advantage if they have multiple tenants who aren’t all as agreeable. Instead of expecting a full rent waiver, consider asking:

for monthly rent payments if you’re currently paying quarterly

to spread the next 3 months’ rent payments over the next 6 months instead

for a reduction in rent (or to pay the difference at a later date)

to base the rent on turnover, either temporarily or permanently

to ‘share the pain’ between you by halving your rent

Work out which options you can afford, and which you think are most likely to be accepted. Articulate these requests politely and you’ll be more likely to find a happy medium.

Document all communication

Negotiating rent and contracts is a serious issue, and you need to make sure anything you’ve asked for exists in writing. An initial email or letter can be supplemented by phone conversations, but anything you agree orally should be copied up and sent in writing after. It’s really important that the terms and time frames for any adjustments are formally documented in your correspondence for mutual clarity.

Any documented agreements are known as ‘side letters’ and are crucial in maintaining the legitimacy of your lease. If you’re unsure about anything, contact your lawyers. However, as long as you think about what can benefit both you and your landlord, don’t be too afraid to ask for financial help from them.

Keeping you in business is definitely in your landlord’s interest, especially right now. Make sure you’re clear and calm in writing. As long as everything is formally recorded, you’re in a strong position.

We’re in this together

There’s no denying that you’re dealing with some pretty big challenges at the moment, but the pandemic will come to an end. Plenty of businesses will make it through this and some will come out the other side even stronger.

We’re all in this together, so don’t feel too intimidated to negotiate with your landlord if it may help your business and maintain solvency. If there’s one thing that many of the headlines have shown us during this crisis, it’s that our fellow human beings have a great capacity for understanding and compassion.