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Commercial tenants – proactive measures to consider

Rent

In this unprecedented crisis, many businesses will be thinking about what will happen with their premises. The most immediate thought is does rent still have to be paid and what if it cannot? What rights does a tenant have?

Most leases in Jersey state that the rent must be paid at the required intervals during the term of the lease. That is usually quarterly, but it might be monthly and generally always, in advance. Leases usually require that the rent be paid without deduction. This means that even if you had a dispute with the landlord over say, expenses, then that cannot be deducted from the rent.

What should you do if you are facing a rent payment date and the tap of your cash flow has dried up?

The answer is not so much a legal one, but rather a practical one. The contract between landlord and tenant is a relationship. Relationships are sustained by communication and in these uncertain times, communication is key. The landlord will want to retain you as the tenant, and you need the premises for business continuity. In a mutually beneficial relationship, the landlord should be understanding enough to either suspend or moderate the rent payments, bearing in mind that they may have their own financial obligations, for example, to a lender.

Start the discussion before the problem becomes a crisis and work together with your landlord to construct creative solutions that will work for the benefit of both you. Whilst you will want to keep non-essential outlays to a minimum, it would be sensible to document any interim arrangements even informally to avoid any dispute about these when normality eventually resumes.

Hidden problems

There may be other hidden problems buried in your lease and which may now come to the surface. They may be things like extra cleaning costs being passed on to the tenant with an increased service charge. That would certainly need to be managed. Other more subtle things such as what happens if your building is empty. Do I need to do anything in particular? If the rent is being paid then I can use it or not? The answer is not straight forward. Most leases do not require premises to be occupied. They usually only provide for windows not to be blocked up if they are unoccupied. There is another more subtle provision which may catch tenants out and that is to do with insurance. Amongst other things, the tenant usually promises that it will observe the conditions of the landlord’s insurance policy. Buried in many insurance policies are provisions which deal with unoccupied buildings and require that not least, the water is drained from the system. If it is not, then water damage will no longer be covered, and the tenant can be liable for any damage. Most building insurance policies will also require a vacant property to be inspected on a weekly basis. This is usually a duty which will be passed by the landlord to the tenant. Most tenant’s may not even realise such a provision exists as it is unusual to have long term vacant periods in commercial premises but is something that we may see a lot of in the coming weeks. In such circumstances, tenants should bear in mind that there is likely to be a requirement for them to inspect the premises at least weekly. Failure to do so could constitute a breach of the lease terms, even if there is no detrimental fall out from a lack of inspection. There may be other provisions to do with security of the building and internally, in the advent of GDPR, all sensitive material must be properly put into storage.

Overall, make sure you are aware of your obligations as a tenant and that you comply with these going forward. Even if it is not business as normal, the lease terms still apply as though it were. It may also be worthwhile checking the provisions of your own insurance as it could be that there is cover for business interruption.

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