Another quarter, another default…(January 2010)

In the current economic climate, the non payment of rent has become a common feature of a landlord and tenant relationship where the tenant is struggling. Worse still, is the situation where the tenant leaves and the premises remain empty with the landlord under an obligation to pay rates.

Traditionally, rent is paid quarterly but more tenants are now asking for a rent holiday or for the option of being allowed to pay the rent on a monthly basis. Landlords therefore need to weigh up the interruption to their income stream against the likelihood of the tenant going under. With anything other than a system of the normal quarterly payment of rent, there may also be additional administrative costs for the landlord which it would like to recover from the tenant. There are, however, opportunities for landlords to be creative in the deals they are prepared to do with their tenants.

For those tenants fortunate enough to have a break clause in their lease, there is the opportunity to exercise this or to use it as a bargaining tool with their landlord who may not wish to be faced with empty premises. If the break clause is to be exercised, it will be critical to ensure that all necessary pre-conditions have been complied with in order for the break to be effective and there may well be a cost element in this for the tenant if, for instance, the premises need to be put into a good state of repair.

Against this are those landlords who are constantly monitoring their tenants' position with a view to taking speedy action (to recover rent or possession) if it seems that the tenant is about to become insolvent.

For those prospective tenants around who have the money to take on new premises, there are more opportunities to negotiate longer rent-free periods and lower rents from landlords who are keen to be rid of empty premises.

In these uncertain times, however, what does remain certain is that landlords - and tenants - need constantly to keep their position under review and to be aware of what options they have and how best to maximise them.

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