Protecting your commercial property in uncertain times

By Ian Osborn (pictured), Business Services Solicitor at Banner Jones

This has been a difficult time for many businesses and, in recent months, I have seen an increase in enquiries relating to how landlords can protect themselves if their tenants need to downsize, relocate abroad, or go into administration before the end of a lease agreement. It’s useful to point out the facts.

When a landlord and tenant sign a lease, this can only be terminated under the following circumstances:

1. The tenant can terminate the contract and agree to leave the premises upon the expiration of the lease (presuming the tenant does not enjoy "security of tenure" under the landlord and Tenant Act 1954 or where the tenant chooses not to renew)

2. Both the landlord and tenant can come to a mutual agreement and surrender the lease

3. The tenant takes advantage of a break clause within the lease agreement, as outlined in the original agreement

‘We may see more tenants looking to leave long-term lease agreements’

4. The landlord brings the lease to an early end through forfeiture if the tenant is at fault i.e. not paying their rent

As the ambiguity surrounding

market conditions continue, we may see more tenants looking to leave long-term lease agreements through options three and four, as they consolidate assets and consider their long-term position. So, what does this mean for

landlords? Earlier this year, a High Court judgement rejected the notion that Brexit can be used as a “frustrating” event. Therefore, if a tenant does not withstand the market insecurity, this is not enough to escape a lease. However, if a tenant enters

administration or liquidation, or stops making payments, the landlord can forfeit the lease –

assuming the commercial leases contains a clause to allow it. This will allow the landlord to secure vacant possession and re-let the property. A potential solution – or

compromise – in cases where the tenant is unable to make rent payments is to seek an alternative agreement with them. This may not necessarily mean you will need to terminate the lease but could, for example, see you bring on a third- party to share the occupation to ease financial pressures on the current tenant. Alternatively, temporary rent reductions or suspensions, if handled well, could be worth considering in a bid to ensure a long-term lease survives. If a tenant is unable to continue

trade it would be in a landlord’s favour to avoid the issues associated with forfeiture of the lease. You could negotiate the surrender of the lease with a

suitable financial agreement based on affordability. Although the long- term occupation of the space will be lost, the financial terms upon how both parties leave the lease will go a long way to avoiding a sustained loss of rent. There are a number of measures

to protect oneself when agreeing terms on a lease – from credit checking potential new tenants; taking a security deposit; securing a letter of credit provided by the bank on account of the tenant; reviewing a tenant’s business plan; and confirming adequate tenant insurance to minimise liability.

West Bridgford and Corby buck the trend

East Midlands high streets are some of the most impacted by shop closures across Britain, with eight closing every week in the first six months of the year; however, shopping centres like West Bridgford in Nottingham and Corby are bucking the trend. According to research compiled for PwC by the

Local Data Company (LDC), between January and July, 202 shops closed at the region’s main shopping destinations. Compared to the same period in 2018 when 217 shops closed, it is one of four regions in Britain to see a drop in net closures, offset with the lowest number of store openings (108) in five years. The number of shops in the region has fallen from 4,550 in January to 4,456 in July. The half year net decline in the East Midlands of

2.1% is greater than the average on Britain’s high streets of 1.83% - the highest since records began. Derby experienced the greatest impact across the

region’s cities with a net loss of 15 stores, with five opening and 20 closing, followed by Leicester with a net loss of eight stores with 16 openings and 24 closures. Nottingham saw the lowest net loss with five stores with 26 openings and 31 closures. However, the high streets of West Bridgford and

Corby are bucking the trend with both seeing a net growth of two stores - among the only areas in the Midlands as a whole to see net growth. Andy Lyon (pictured), Retail and Consumer

Leader for PwC in the Midlands, said: “The outlook continues to be very challenging for retailers.

86 business network November 2019

High streets in the East Midlands have been severely impacted by shop closures “The success stories of West Bridgford and Corby

demonstrate how the blend of leisure and experience are reviving high streets, and when shopping centres get this balance right it results in a thriving local scene where consumers spend time and cash. “Leicester has been riding high following its

footballing success and Richard III discovery, attracting additional footfall. However, the retail environment proved too challenging for a number of businesses. Derby’s high street has also been significantly impacted but with its two Business Improvement Districts; the Cathedral Quarter and St Peters Quarter, it is now not just a retail space but a district for business, leisure and living.”

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