The aim of a business contract is to try to provide certainty for both parties.
Whether you are a landlord or a tenant, it is important to understand your legal obligations and commitments in respect of any commercial lease that you have entered into. In some cases, it might be sensible to come to an arrangement with your landlord or your tenant to enable changes to be made to the formal lease agreement. Some of the key aspects of your lease that you may need to consider changing might include:
- the length of the lease
- annual rent charges
- services charges
- break clauses
- personal guarantees
If you are considering an early exit from your lease, then this may not be straightforward and will depend on the terms and conditions that you have agreed to. If you have a good relationship with your landlord and you feel that they may be open to discussing ending the lease early than originally intended under the original lease agreement, then it may be worthwhile having a direct conversation. If not, there may be other things to for you to consider.
Some leases may include a break clause, this is a way of giving both the landlord and the tenant an option to end the lease early after a predetermined period. It is worth checking your lease to see if such a clause was included. If your lease does include a break clause you will need to check what steps must be taken to trigger this clause. These steps should be set out within the lease document and it is important to fully understand what you need to do as it is likely that if you do not follow the conditions set out in the lease, you could find that you have not properly triggered the break clause. As an example, some leases require notice to be given in writing to your landlord (or to your tenant) and the lease may also specify where that written notice must be sent, and it may provide a different address to the one which you may have used previously for general correspondence. You will also need to ensure that you continue to pay the rent that falls due under the lease for the period of notice that you are required to give.
THINGS TO CONSIDER DURING NEGOTIATIONS WITH YOUR LANDLORD
- If you are looking to try and make any changes to the terms of your lease, you may want to begin by having a direct conversation with your landlord.
- Make sure that you have read through the terms of your lease and understand the areas where you are looking for the changes to be made.
- If you are mainly interested in agreeing a reduction in your rent, it is worthwhile preparing some estimates of different levels of reductions that you may want to discuss and the period you may want the reduction to last.
- If the performance of the business is having an impact on your ability to continue to pay rent, your landlord may ask if you can provide some financial information, you should consider what information you have that you are able to share.
- Your landlord may decide to defer, reduce, or entirely suspend the rent for a period. Any decisions of this type must be documented very carefully.
- If your landlord does agree to changes in respect of your rent payments, your landlord may still require you to continue to make payments for services charges.
Seek advice from a business restructuring specialist. Negotiations with landlords can be difficult. Seek early advice from one of our corporate recovery professionals and get your business back on track. We regularly negotiate with third parties such as creditors, suppliers, landlords and HMRC on behalf of clients and assist them to explore rescue options such as Time to Pay arrangements, alternative funding options, Company Voluntary Arrangements, administration.