10/02/2009

Retail e-brief – monthly rents take a big step forward

One of the country’s major Landlords announced last week that it will agree to Tenants paying rents monthly in advance rather than the usual quarterly.  PRUPIM appears to be the first Landlord to take this step without asking for anything in return other than that rents are paid electronically (which is a usual Lease term and therefore something that Tenants are typically already obliged to do).

As many Landlords recognise the benefits for themselves of assisting Tenants in this way we can expect to see more moves in this direction.  Where a new Lease is being negotiated this change from the “standard” is straightforward to deal with.

Where you have an existing Lease, how do you take advantage of the Landlord’s offer?  Can you rely on a letter?  Do you just send monthly payments?  Do you need a formal variation of your Lease?

If you are seeking a permanent change to your Lease terms then this must be dealt with by means of a Deed of Variation.

Most Landlords however will only be prepared to offer a temporary concession and will therefore want to deal quickly and simply with the documentation.  The peculiarities of contract law mean that there will be benefit to Landlords of offering an unconditional relaxation.

Tenants can take advantage of the fact that if Landlords were to ask them for fees or any other financial consideration in return for the relaxation this would take the arrangements outside a truly temporary concession. Tenants could then argue that the lease had been varied, and so the concession would continue beyond any temporary period.

A concession can be dealt with by means of a simple letter from the Landlord but a variation requires a formal deed executed by all parties to the Lease.

Some Tenants with multiple outlets may find a switch to monthly payments administratively burdensome, but with many Landlords now prepared to offer monthly rents they may well become mainstream.

Not all Landlords of course will be able to offer monthly rents, but those who can may well be able to gain advantage in the competition for Tenants, particularly smaller business Tenants.

Retail Tenants should ensure that if they are able to secure monthly rent payments, those arrangements are consistent with the remainder of the Lease terms, for example, service charges are a significant outgoing and will also need to be covered by the monthly payment regime.