Rent reduction for businesses due to COVID-19

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Many business owners will be finding it tough in Alert Level 4 and Level 3. With stay-at-home orders preventing access to premises, or permitting some categories of business to operate as usual, it is more than likely that income levels for most small businesses will fall during this period. For those leasing commercial premises, you may be able to obtain a rent reduction to help bring your costs down during this difficult period.

What are the rules of play?

Check your lease agreement

While tenants are obligated to pay full rent, leases (based on the ADLS sixth edition 2012(5)) will contain a “no access in emergency” provision (see clause 27.5) which allows for rent relief where there is an emergency and the tenant is unable to gain access to the premises to fully conduct its business from the premises. The pre-2012 versions of the ADLS Deed of Lease do not include these provisions so tenants will need to check the version of their Deed of Lease in the first instance.

How much of a reduction can tenants expect?

There is no standard figure for this however, the ADLS “no access in emergency” clause provides for a reduction of a “fair proportion of rent and outgoings.”

What do I do if my lease doesn’t have a clause to rely on to obtain a rent reduction?

You may still be able to negotiate a rent reduction with your landlord. Helping support tenants through this outbreak is likely to be more cost effective for landlords than finding a new tenant if the current tenant’s business fails.

What other ways can I cut costs?

Consider whether:

  • the premises can be subject to a sublease arrangement (find out more about subleases here)
  • you have any non-vital services, overheads and subscriptions which can be placed on hold, or
  • you can apply for government packages in addition to the subsidies such as cashflow and tax measures, business finance guarantee schemes and non-interest loans.

How can we help?

WRMK’s team of experienced business lawyers can advise you on the specifics of your lease. If you need some help or guidance in this difficult time, please give one of us a call or contact your usual WRMK lawyer for advice.

Our thanks to Dilshaan Mohanaraj for writing this article.

Every effort has been made to ensure accuracy in this article. However, the items are necessarily generalised and readers are urged to seek specific advice on particular matters and not rely solely on this text.