Since the beginning of the Covid 19 Pandemic, many will have read about various retailers across the UK pleading with Commercial Landlords for rent reductions, Monsoon Accessorise who have 258 stores being one of the many examples to request this. There will of course be Landlords who will readily agree in order to keep a happy Tenant in situ and avoid a vacant property. Others will refuse, and those Landlords will be within their rights to do so.
With energy prices soaring, requesting rent reductions seems to be a new trend for major retailers struggling on the High Street and we at Richard Lionel & Partners are being asked this question of how to reduce rent almost on a daily basis.
Many will recall how William Hill wrote to their Commercial Landlords throughout the UK requesting rent reductions as a result of many of their units suffering due to the legislation concerning Fixed Odd Betting Terminals and Philip Green’s Arcadia Group were another example of requesting rent reductions at many of their outlets.
There was much hype when House of Fraser confirmed substantial rent reductions at many of their stores in order to increase their chances of survival. But with most leases allowing for ‘upward only’ rent reviews, how can this be?
It is common practice when a lease ends and a lease renewal occurs, for terms within a commercial lease to alter when renegotiating. Often, one of the crucial aspects relates to the amount of rent agreed. At a lease renewal, a Tenant starts afresh and this an opportune time to try and negotiate a rent reduction.
If at the time of a lease renewal a Tenant can prove their rent to be above the Open Market Rental Value, it is easier and often more cost-effective for a Landlord to agree a rent reduction rather than pursue an inflated rent through the Courts.
Unlike when a rent review occurs, there is also the threat at lease renewal that the Tenant will vacate the property if the rent is excessive or unaffordable and few Landlords desire empty properties with no income, no service charge contribution, no insurance contribution and empty rates liability.
However, during a lease term, Riichard Lionel & Partners are often asked if there is anything else that can be negotiated in order to reduce the rent. A re-gearing of the lease is a possible solution to this. An approach can be made to the Landlords requesting a reduced rent in exchange for the Tenant renewing their lease and agreeing to a longer term. The reduced rent is therefore worthwhile to the Landlord who has now the added security of a longer-term tenant.
The majority of Landlords would rather ensure their property is let to Tenants paying rent instead of forcing them out of business and being left with properties not income producing.
Despite there being no official mechanism within most commercial leases to reduce the rent, if a tenant happens to request a reduced rent and the Landlord is willing to listen and is sympathetic, any rent can be agreed upon, between the parties at any time.
It may be a cliché but as we at Richard Lionel & Partners often say to clients, if you don’t ask, you don’t get!