Can’t Afford business Rent | What Should You Do?
As might be expected in the current economic climate, recent industry figures have shown a surge in the number of tenants with rent arrears. Some businesses are finding it difficult to meet all their financial obligations but ignoring them will only make matters worse.
Dan Smith, Managing Director of M4 Property Consultants would encourage tenants of commercial properties who are in genuine financial difficulties to get in touch with their landlord or managing agent as soon as possible to explore different ways to resolve the situation.
“In my experience,” he explained, “ Too many businesses leave it too late to acknowledge serious financial issues. Reaching the stage where they are unable to pay rent is not the best time to start talking to the landlord or managing agent about financial difficulties. A landlord is far less likely to be sympathetic to any plea for leniency or assistance if no prior effort has been made to avert the situation.”
He continued, “The vast majority of commercial leases require rent to be paid quarterly or monthly in advance and include provisions for interest to accrue on late payments. It does not take long for this to become a financial burden once rent payments are suspended.”
Tenants have a misconception that landlords can afford to not receive the rent for while, which is often not true. Dan explains, “Most landlords use their rental income to cover the payments on their own borrowing. An unexpected disruption to this cash flow can cause severe difficulties; particularly with their banks in the current climate. As such, they will sometimes need to safeguard their own business by enforcing the terms of the lease and receiving the rent that the tenant is contracted to pay.”
So, what should you do?
As a tenant, if you foresee yourself or your company experiencing genuine difficulty in paying the rent, you need to speak to your landlord or their managing agent as soon as you become aware of a potential problem. You should be prepared to provide supporting evidence to demonstrate your difficulties, for example your management accounts and bank statements may be requested. Should the landlord be willing to grant a concessionary rent, increased payment period or other payment
plan, they may well require you to discuss your business plan with them or their advisors. If your difficulty is genuine, you would be foolish to refuse reasonable requests for this information.
Once provided with relevant information, the landlord can fully assess the situation and where possible see what help can be provided to assist the tenant get through the difficult period. Ultimately, the landlord wants to maintain tenants but they must show a realistic ability to meet future rental payments to receive assistance.
Dan summarises by saying, “ The economic climate is difficult for tenants but also for landlords. Where genuine financial difficulties are experienced by tenants, a clear path to resolve must be identified and good communication between tenants and landlords must be exercised. Putting your head in the sand is not an option for either side.”
