Retail tenants that are experiencing a decline in trade may start to find it difficult to pay their rent. These are some of the factors that they should consider to ease/minimise the financial pressure and risk of the landlord taking back possession of the property.
Negotiations – in the current climate, landlords may bemore willing to negotiate and reach compromises with retail tenants that help to maintain (at least some) rental income. For example, as a means of improving cash flow, the retailer could ask the landlord to agree to it paying its rent monthly in advance (as opposed to quarterly) or agree a realistic payment plan to settle the arrears.
Break options – if the tenant wants to get out of its lease altogether, it should check for any break options and ensure that any conditions are met.
Anticipating action by the landlord – tenants should become familiar with what a landlord can lawfully do once the tenant has become insolvent. For example, statutory restrictions apply to a landlord's right to forfeit or distrain once a company is in compulsory liquidation or administration.
Voluntary arrangements – these have the benefit of providing a straightforward and cost-effectivemeans for arrangements to be reached with the tenant's creditors (including landlords) in relation to the payment of debts (such as arrears of rent) whilst avoiding liquidation and attempting to rescue the tenant's business. The voluntary arrangement should deal with any leasehold properties and set out how the tenant's liabilities (for arrears, future rent, dilapidations etc) are to be settled and the relevant leases determined (if the premises are no longer required). The terms of the voluntary arrangement should also state what action (if any) the landlord can take to recover rent or the property. Also, if the tenant is a small company (with a turnover of less than £5.6million) it can file for what is known as a "moratorium". Themoratoriumprevents the landlord fromtaking legal action without the permission of the court.
Administrations – these have become farmore popular since the more streamlined and simplified out of court procedure that was introduced by the Enterprise Act 2002. The main advantage of the administration process for a tenant is themoratoriumwhich applies in all cases and prevents the landlord frombringing any legal action against it to recover rent or the property without the permission of the court or the consent of the administrator. This period of protection fromaction by the landlord (and other parties) enables the administrator to concentrate on producing a rescue plan for the business and the possibility of selling the business as a going concern.