Commercial Leases

What to do if the Credit Crunch has affected you

The severe economic downturn may mean that Christmas may not be quite such a magical time for hard pressed tenants and in turn their landlords as it has been in previous years.

With the majority of commercial leases still providing for the payment of rent on the usual quarter days, the payment due on the 25th December has traditionally relied heavily on a good trading period in the weeks leading up to Christmas with takings also being put aside to cover the leaner, traditional sale months, in the early part of the following year.

The downturn has been so severe and sudden that it is likely many tenants are going to struggle with their rental payments.

There are a number of remedies available to landlords where an arrears situation arises but with a tenant facing serious financial difficulties and a subdued letting market it is likely landlords are going to need to take a more practical approach to dealing with the problem.

In turn, most tenants will want to resolve the problem amicably and in many situations it will be a case of agreeing temporary arrangements acceptable to both sides until such time as the economic situation improves.

Timely and practical legal advice may well ease an awkward situation before views become polarised and matters get beyond the point of retrieval.

Tenants will need to know what steps they can take that are likely to be acceptable to a landlord in order to continue trading and secure their financial position in the circumstances.  Landlords will want to give tenants who are in genuine difficulty and who acknowledge the problem in its early stages an opportunity to retrieve the position and keep the premises occupied with a preserved rental income.

There are therefore a number of temporary solutions both parties can consider including for example agreeing that quarterly rent payments will be made on a monthly basis for a period of time or even providing a temporary rent payment holiday.

All of these arrangements can be embodied in an agreement which does not prejudice either parties position in the long term but it is important that such arrangements are documented carefully to avoid unforeseen consequences in the longer term.

Accordingly therefore whether you are a landlord or a tenant timely legal advice before problems get out of hand can pay enormous dividends.