How to Ask for a Rent Reduction

Requesting rent reductions has become a familiar trend for retailers struggling on the High Street, and we at Richard Lionel & Partners are asked how to reduce rent almost on a daily basis.

In 2019, Monsoon Accessorise, which then had 258 stores, was one of many retailers pleading with Commercial Landlords for rent reductions. William Hill wrote to its Commercial Landlords throughout the UK after the legislation on Fixed Odds Betting Terminals hit many of its units (how that played out), and Philip Green’s Arcadia Group requested reductions at many of its outlets. The Covid-19 pandemic and soaring energy prices brought many more requests. Some Landlords 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.

Can a commercial Tenant ask for a rent reduction?

Yes. Despite there being no official mechanism within most commercial leases to reduce the rent, if a Tenant requests a reduced rent and the Landlord is willing to listen and is sympathetic, any rent can be agreed between the parties at any time.

Can a rent review reduce the rent?

Not under most existing leases, which allow only ‘upward only’ rent reviews: the rent can stay the same or rise, but not fall. There was much hype when House of Fraser confirmed substantial rent reductions at many of its stores in order to increase its chances of survival. With most leases allowing only upward-only rent reviews, how can this be? The answer lies in lease renewals and regears, where the rent is renegotiated rather than reviewed.

A new law will ban upwards-only rent reviews in new business leases in England and Wales, but it is not yet in force and does not apply to existing leases (more on the ban).

Why can the rent fall at a lease renewal?

Because at a lease renewal a Tenant starts afresh, and the terms of the lease, often including the amount of rent, are renegotiated. 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.

For leases protected by the Landlord and Tenant Act 1954, if Landlord and Tenant cannot agree, the court sets the new rent at what the property “might reasonably be expected to be let in the open market by a willing lessor” (section 34 (opens in a new tab)). It is common practice at lease renewals for rents to reduce, which our team at Richard Lionel & Partners often negotiates when representing Tenants.

Why would a Landlord agree to lower the rent?

Because an empty property costs the Landlord money. Unlike at a rent review, there is a threat at lease renewal that the Tenant will vacate the property if the rent is excessive or unaffordable, and few Landlords want an empty property with:

• no rental income
• no service charge contribution
• no insurance contribution
• empty rates liability

The majority of Landlords would rather their property is let to Tenants paying rent than force them out of business and be left with a property producing no income.

What is a lease regear?

A lease regear is a renegotiation of the lease during its term. Richard Lionel & Partners are often asked whether anything can be negotiated during a lease term to reduce the rent, and a re-gearing of the lease is a possible solution. An approach can be made to the Landlord requesting a reduced rent in exchange for the Tenant renewing their lease and agreeing to a longer term. The reduced rent is then worthwhile to the Landlord, who gains the added security of a longer-term Tenant.

Is it worth asking for a rent reduction?

Yes. 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!