Commercial and residential rent provisions differ considerably. Residential rent arrangements are rather basic, in the sense that there’s little if any flexibility. It’s almost like a formula to be followed – rent amount, rent day one month in advance and possible yearly rent review. There’s really not much else that can be said about residential rent provisions.
But commercial rent provisions have a broader scope in terms of options for the tenant, which might actually benefit the landlord as well. Rather than think about that formula with residential rent – rent amount, payment day, rent review – commercial tenants and landlords always explore options and negotiate. The possibilities are many.
For instance, if the property needs to undergo improvements or refurbishment to accommodate the new tenant’s business, the landlord might take this into consideration and agree to be flexible by offering the tenant some options. Whether the landlord pays for improvements or not, if the tenancy is agreed, until the property is fit for purpose, the landlord might be open for negotiation with the tenant.
Commercial tenants are often in the position to negotiate with the landlord. The tenant could ask the landlord to offer the first month of tenancy rent free, to allow for refurbishment and improvements to the property. Also, the landlord could agree to a reduced rent for a certain period of time, or a provisional rent until such a time when the business is up and running.
A provisional rent for a limited period can also be considered, before reviewing and agreeing on a permanent rent. Often landlords will also be accommodating and will agree to a 10 year rent review. Some landlords will be open for charging a basic rent and a percentage of the business profit if it goes over a certain threshold.
Rent abatement is when the tenant does not need to pay rent because of exceptional circumstances, such as flooding that affects the business. There are other reasons why a tenant is entitled to a rent abatement. Some of these exceptional circumstances could be forced closure by the government because of a pandemic, disrepair by the landlord, earth quakes and anything beyond the tenant’s control, preventing business continuity.
The tenant could ask the landlord to suspend rent in part or in full, if the property is destroyed, unfit for purpose or unsafe for both staff and customers. As long as the destruction was not caused by the tenant, the landlord will have to allow suspension of rent.
The rent is suspended until the landlord has made repairs and the property is fit for use, and meets health and safety requirements. It could be that the landlord and tenant do not agree on the period or amount of the rent suspension. In this case, the Arbitration Act 1996 will apply.
The coronavirus pandemic lockdown is also an unprecedented event beyond the tenant’s control. As the government enforced closure of non-essential shops, bars, pubs, cafes and restaurants, rent payment is something that can be negotiated and a solution needs to be as reasonable as possible so that there continues to be business continuity both for the landlord and tenant.
Do you have any issues in relation to rent or the wording in a lease agreement? Please get in touch for a no obligation, 10 minute complimentary call with one of our commercial property lawyers. SG
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