Many commercial landlords and tenants are struggling during the COVID-19 outbreak.
There are pressures from both sides, forcing the compliance of leases versus an unprecedented downturn in trade from workplace changes and stay at home rules.
Even with the government setting out guidance on commercial property at this time, the commencement of legal action, winding up petitions and other lease enforcement pressures are being widely reported across the country.
Unfortunately, there is no framework for managing this situation. One solution that is starting to be talked about is pain-sharing – keeping an open dialogue so both the landlord and tenant partner work out a rent payment plan that accommodates both sides.
Is pain-sharing a solution?
Pain sharing is a mechanism that provides both landlords and tenants a way to preserve their relationship and ensure that when life goes back to ‘normal’ both parties are in a position to move forward. For landlords, evicting tenants as soon as government protection ends is not a solution because such action is likely to lead to empty rental space. And for tenants, deferring full rent payments will only add to the anxiety facing business owners, many of whom are taking similar action in relation to tax and the payment of suppliers.
Pain sharing can provide a solution, but it requires tenants and landlords to be open with each other, sharing information to understand where the hardship lies. The positive aspect of redefining the landlord and tenant relationship as a partnership is that:
- partners are transparent with each other, and
- they share both the pain and benefits of business, in good times and bad
Pain-sharing allows both parties to focus on win/win solutions and proactively mitigating losses for each party. There are a range of negotiable options available to landlords and tenants, for example, both parties could agree to a reduced percentage of rent during the lockdown and up to 12 months after, with provision to pay the balance over a period of two to five years to allow tenants to manage cash flow in recovery. Negotiating future rent freezes is another win-win solution.
Although it has almost become a cliché, the truth is that everyone is in this together. COVID-19 highlights how much we are all interconnected, both in our commercial and private lives. Landlords and tenants both want the same thing – a stable income and good relationship. By becoming partners and helping each other to come through this difficult time, everyone wins.