It is important for both landlords and tenants to take professional advice prior to commencing negotiations or serving notice of a lease renewal and to obtain an appraisal of the current market rent.
On renewal of a lease, the rent is assessed under the Landlord and Tenant Act 1954 as a market rent and is not ‘upward only’ as with most rent reviews within commercial leases.
Under the 1954 Act, the valuation date for determining the rent payable under any new lease is either the date the new lease commences or the date of a hearing. If terms have not been agreed, then interim rent may be payable from the date specified in the landlord’s Section 25 notice or the tenant’s Section 26 request.
Therefore, tenants in a market that is falling quickly might benefit from rushing through the renewal process so that the rent is assessed during the COVID-19 restrictions or any subsequent period of economic downturn that follows the lifting of restrictions. This is because, in some cases, this could lead to a possible reduction in the rent payable under the renewal lease, especially in industries like high-street retailing that have been negatively affected.
Tenants:
In a rapidly falling market, those tenants who have not yet served a Section 26 request to renew their lease may wish to do so to benefit from a potentially lower rent.
If a notice has already been served, then a tenant may want to hold off agreeing or obtaining a determination of the rent in case these fall even further.
Landlords:
For landlords, it is likely to be beneficial to seek to push out any possible renewal hearing dates as far as possible in the hope that rental levels will have either levelled out or recovered.
There is nothing in the Coronavirus Act 2020 or in any government guidance that prevents a landlord from pursuing a dilapidation claim against a tenant in respect of outstanding breaches of covenant when a lease comes to an end.
The COVID-19 restrictions are affecting many aspects of landlord-tenant relationships. Both landlords and tenants should seek professional advice on the potential impact of COVID-19 on their lease, lease renewals, break options, and rent reviews to ensure that, where appropriate, they are taking advantage of or mitigating any potential impact.
Here at Roger Hannah, we have been busy advising landlords and tenants. Our dedicated Lease Advisory team has the specialist skills and experience to deal with all commercial landlord and tenant matters, advising clients across all sectors of the property market, both regionally and nationally.
Our team can help with rent reviews, lease renewals, restructuring, re-gearing, surrender, and assignment of leases, as well as general advice on all lease-related matters and landlord and tenant issues or disputes.
For further advice, please contact
- Mark Keirl: ma*******@ro**********.uk, 07764158233, 0161 429 1663
- or Demetri Papaioannou: de******@ro**********.uk, 07718587354, 0161 641 8659