Commercial Landlords the ‘Furlough’ question?
Peter Fowler • April 15, 2020
What should a landlord do if they are approached for a rent reduction?
So, what should a landlord do if approached by a tenant for rent relief?
Most retail shops, unless selling food, medicines or other essential goods, are going to be badly in need of assistance. The same applies to many manufacturing premises, but what about the service sector?
Lawyers, accountants and financial traders may have certain sectors of their business collapse, (residential conveyancing being an obvious example), but other sectors such as family, wills and probate may be showing an upturn.
What is clear is that many professional offices have taken advantage of the ‘furlough’ opportunity to cut overheads and receive Government support for 80% of salaries up to £2,500 per month for an initial three-month period. As salaries form a large proportion of any business overheads it may, in some cases, be used to preserve profits rather than it’s intended objective of retaining jobs. Liverpool FC with their ‘about-turn’ on the use of furlough, as they are one of the wealthiest football clubs in the world, is an extreme example.
It is also worth bearing in mind that there are business rate, VAT and PAYE holidays available to preserve many business cashflows.
In my view then, any landlord approached for a rent -holiday should as the following questions:-
- Please supply evidence of your reduction in income?
- How many staff have you furloughed and what is your saving in wages?
If the tenant is not prepared to offer such information, then it is reasonable to assume that their finances are such that their business is sustainable in the short-term and refuse any rent reduction. After all, when granting a lease, a landlord reasonably asks for references and financial information, so such a request is also reasonable.
Once in possession of all the financial facts the Landlord can make a value judgment on a rent holiday reduction or rent deferment until times are better.
Any such agreement should be in writing and ideally in the form of a Deed of variation of the lease.
We will, of course, be happy to provide advice in such circumstances.
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