2020/NO.14 - COVID-19 has thrown us all into unknown territory with established rules and conventions not exactly being broken but distorted.. The pandemic will have a continuing effect for many years to come.
Delay
Not uncommon to now find that rent reviews and lease renewals are being delayed. There is every reason to be pro-active rather than waiting “for something to happen”. More than likely it won’t.
If a rent review linked with a standard Rent Assessment Proposal (RAP) has not been served in the time span of not more than twelve months and not less than six months prior to the rent review date, do something about it. Write or email your landlord reminding him that no RAP has been served and that you want certainty and closure. Put forward your own opinion of rent and confirm that if you hear nothing in response that you will take his silence as a YES. A rapid response will be received, especially if you have confirmed in your words that the rent will go down.
You will NOT be able to rely on market disruption resulting from COVID-!9 if your rent review date is before 23rd March 2020. A harsh position to confirm, but essential that you know the score. In simple terms the rent review date is the cut off point for the willing hypothetical tenant’s market awareness. Anything after that date cannot be taken into consideration. However, if your rent review date is after 23rd March 2020 then full account must be given to the ongoing effects of COLVID-19. Future lease renewals will fully take into account the current and immediate future trading difficulties and lack of profitability
If you are a Wellington Pub Co lessee all rent reviews are on an upwards only basis. The best you can negotiate is a nil rent uplift, even if the review date is post 23rd March. There is more than a glimmer of hope on lease renewal. This is the only opportunity to settle a significant reduction in rent and taking full account of the current dire trading difficulties. Our view is that there will be strong forces in your favour to insist on just such a big rent reduction. Lease renewal is the only chance you will get to make this happen. At lease renewal and having the protection of the Landlord and Tenant Act 1954 (and subsequent amending legislation) you can ask for a maximum new term of fourteen years or your current lease term of years if less than fourteen years. If you have a twenty-year term anything in excess of fourteen years would have to be by negotiation.
Regulated Pub Owning Businesses - Rent Reviews under the Pubs Code
Most pub leases and agreements do not automatically allow for an assessment of rent, but tied tenants renting under one of the regulated pub companies under the Pubs Code have statutory rights they can fall back on to help ‘trigger’ a rent assessment.
Triggering rent assessments could prove to be extremely valuable for those that are able to, it would bring forward a rent review to a date after the virus restrictions and lockdown was imposed, allowing for the rent assessment opportunity to take in to consideration the impact of COVID. This will ultimately allow for the rent to reflect the economic downturn that is adversely affecting pub on-trade sales leading to a potential rent reduction, or nil uplift if on an upwards only rent review clause.
Backdating
It really does not matter when the rent review negotiations are settled, the new rent runs from the rent review date. If a reduction has been agreed, then so called ‘back rental’ for monies that you have overpaid will be owed to you. This should be in the form of a single cheque to include interest but don’t bank on it. More often than not you will be fobbed off with the money being credited to your trading account. Why interest on the money owed to you? The same rules should apply to your landlord as to you. If you are a late payer, then interest can be applied to your debt at a punitive rate of 4% over current bank base rate. Sauce for the goose etc.….
Interim rent
In the case of lease renewals two dates are important. First the date of the termination of the current lease. Second the date from when the new lease will come into effect. They could be many months apart and sometimes over a year. The interim rent covers the gap between one and two. COVID-19 can be guaranteed to be taken into account at position two. This is because the willing hypothetical tenant would have full insight into the effects of the pandemic. Position one can only take the same view if the termination date was after 23rd March 2020.
Dilapidations
Again timing is everything and not affected by COVID-19 regulations or effects. There is nothing in the COVID Act 2020 or any further UK Gov guidance which will prevent Pub Cos or landlords pursuing terminal dilapidation claims against tenants in relation to outstanding breaches of covenant when a lease comes to end. A landlord, if he is going to serve a Terminal Schedule of Dilapidations in the lead in period to the termination date of the lease has time constraints. The schedule should be served in the period not greater than twelve months nor less than six months prior to the end of the lease. No good if the schedule has not appeared less than six months to the due date. The result will be a rush to comply with the repairing and decorating obligations, even more so if it is the depths of the winter. Hoping that the schedule will not be served is an option but a very high risk strategy. Be pro-active an insist that the schedule is served in good time. Nine months prior to the date would be ideal. You may not agree with the content of the schedule but at least you will have the time to argue the toss. Remember, the schedule content is but one person’s opinion, not set in tablets of stone and can certainly be negotiated. A Pub Co or landlord’s ability to claim for loss of rental income during the period while works are completed will quite likely be affected if the COVID restrictions mean the premises could not realistically be re-let. There would need to be a willing tenant and a willing landlord in this situation, but what tenant would be looking to take on a pub in this economic climate and pay a rent.
As with all of the above, timing is critical.