Commercial Landlords & Tenants – Changes To Rental Payments & Side Letters Due To The Coronavirus Outbreak

Primark, like many other retail stores, has had to close its UK stores due to the coronavirus pandemic and has told its landlords that it will not pay £33 million in rent. The well-known high-street retailer has written to its landlords to say it will not be in a position to pay for two thirds of its 189 UK stores and it needs urgent discussions.

Burger King has also refused to pay its latest rent due to the closure of its restaurants and takeaways.

Government coronavirus guidelines for commercial landlords and tenants

Due to the Government guidelines on the coronavirus outbreak, all workers, except essential workers, are being told to stay at home. This is having an effect on commercial tenants who are having to close their premises as they can no longer run their business. This is causing cash flow issues and further distress about how they will pay the next instalments of rent due.

The Government has implemented a moratorium on commercial evictions for the next three months for tenant’s who do not pay rent, but some parties still want to document temporary reductions or deferrals in rent or switching from quarterly to monthly in advance.

Side letters

This is often dealt with by way of a side letter. Here are a few of top tips to think through when you are considering a side letter:

  1. A side letter is personal between a landlord and tenant and will not apply if the tenant assigns the lease. Think about whether the landlord’s successors should be bound by the side letter and expressly deal with this in the side letter.
  2. If there is a pending rent review (which is not fixed, index linked or stepped) it is best practice to state whether the rent change will be disregarded or not on rent review.
  3. Do you need a side letter or deed of variation? A side letter is fine where you are documenting a short term change in rent arrangements as it is temporary. If you are changing the terms of the lease for the duration of the lease then a deed of variation or supplemental agreement should be used instead.
  4. Makes sure that the party signing the side letter or confirming in an email exchange has authority to do so.

side letters coronavirusHow can Nelsons help?

Sarah Burns is a Solicitor in our expert Commercial Property team.

If you require any advice in relation to sides letters as a result of the coronavirus pandemic or any other related subjects, please contact Sarah or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.

 

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