Managing your commercial tenancy in times of crisis

Mark Addley Real Assets Business Recovery Services Leader, PwC United Kingdom

Reviewing your tenancy to free up cash

As businesses look to preserve cash, rent has become a major consideration. With hospitality outlets and non-essential retailers in enforced closure, many are looking for a reduction in rent or service charges, or even for a payment holiday. Some landlords have already agreed to a change in terms and others are having conversations to this effect. Whilst this isn’t a long term solution, there are some ways to manage the situation proactively now and create the right environment for the future.

Don’t destroy your relationship

Before entering any discussions, you should remember that landlords are an important stakeholder - now and in the future. To maintain a sustainable and viable business relationship after this crisis, both parties need to retain a sense of mutual respect.

Proactively engage with your landlord at this time to help them understand your more pressing concerns. Make your position very clear about your current plans, position, whether you can pay rent now, and whether you think you’ll need reduced rent payments or service charge payments.

What you should be doing right now

Unsurprisingly, we recommend that landlords and tenants work cooperatively and consensually to explain each other's issues, concerns and plans and agree on a short-term fix. Over the coming weeks and months, they can then consider regearing leases going forward, with solutions including, but not limited to:

Quarterly to monthly payment terms
Reduced rental cost but increased tenancy length
Forfeit incentives (e.g. an agreed future rent-free period) for reduced rent payments

The size and circumstances of the landlord may determine how they respond to any request; for instance, a corporate landlord’s response will differ to a smaller landlord. So try to be understanding of their position, too.

We’re already seeing innovative solutions. One landlord we’ve spoken to is considering rent reductions for meeting Environmental, Social and Governance requirements, reducing rent for tenants that agree to meet future carbon neutral targets.

Once everything is agreed, you’ll need to work with your lawyers to make sure new documentation is solid.

Maintain good relationships for a mutually beneficial future

While we’re in a critical first phase where the focus is conserving cash immediately, the coming weeks and months will see corporate tenants positively re-engage with their landlords; likely in the next six, though possibly up to 12 months. And this is why it’s so essential to maintain a good relationship.

If you’ve proactively engaged with your landlords around this initial cash crisis, you should be in a better position to consensually negotiate the terms of the lease, the length of the lease, what you are going to pay and on what basis.

Act rapidly to save cash but be mindful

Do what you need to do immediately to preserve cash, but be mindful of your landlord’s needs too. To get your landlords onside, engage proactively and treat them like the important stakeholder that they have been, are now, and will continue to be.