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How do you assess the rent where a lease renewal or rent review falls due in the present climate?

Whilst the country has been in lockdown very few new lettings have taken place and deals that had been negotiated have been put on hold. Tenants, particularly in the retail and hospitality sectors, have been requesting rent deferments or even rent-free periods during their existing agreements. Market transactions provide the comparable evidence upon which negotiated rents at review or lease renewal are based, yet there are few deals taking place.

Should the new rent be based upon pre lockdown deals, which may not reflect the new reality going forward, or should the landlord and tenant try to predict the ‘new normal’.

We have seen landlords concede rent free periods upon lease renewals, reflecting the short-term agreements being reached in the market during the unprecedented lockdown. However, the basic or headline rent can be more difficult to ascertain, particularly in the sectors which have been most affected by social distancing. Can we be certain what the world will look like for restaurateurs in 12 months’ time.

Will social distancing have a permanent or semi-permanent impact upon the number of people who can dine at any one time? Will increased online shopping brought on by the lockdown accelerate the decline of some of the secondary retailing areas of our towns? Will there be an increase in homeworking which will change the type of office accommodation in demand?

In many cases at lease renewal both the landlord and the tenant are looking for some certainty going forward and are keen to agree a new lease term. We have recently seen leases being discussed which provide for a rent review after 12 months, when hopefully the position will be clearer. This can give both the landlord and the tenant the benefit of certainty of the continuation of the lease, whilst not committing to an unrealistic rent.

Protecting the interests of both parties is the key to reaching an agreement that can last into the future and a pragmatic approach is required. Landlords and tenants now, more than ever, need to work together.

Posted in Uncategorized on 18th May 2020 by Trevor Dawson