The ongoing COVID-19 outbreak is a major concern for all business.
As well as causing major disruption for travel companies and hotels it is now beginning to have far reaching effects on businesses, tenants and landlords.
Paul Gibbon, director at Wake Smith Solicitors in Sheffield, looks at how landlords in the commercial property sector can work together with tenants.
“The current coronavirus outbreak has raised queries from landlords about how they can help protect their tenants but avoid long term repercussions from arrangements put in place which may cause problems in the future.
“One way to help the situation is a formal side letter to the existing lease.
“These are documents in the form of a letter, signed by the sender and recipient, which are ancillary to the main lease or tenancy document. They are commonly used by landlords and tenants to modify the terms of a lease on or after completion but in extenuating situations, such as we are now facing, can be a convenient way of documenting a temporary concession or other arrangement.
“Examples of how they might be used during the COVID-19 outbreak include reducing or deferring the rent for a fixed period, allowing for a rent holiday or allowing the rent to be paid monthly, rather than quarterly.”
Points to consider:
The side letter should be as detailed as possible and avoid uncertainty and vagueness.
The time frame - If the concession is intended to be temporary, the side letter should clearly state this. For example that it will last for a fixed number of weeks or months or until the happening of a defined event.
It should be made clear that the arrangement is personal to the original parties. Therefore, if the tenant assigns the lease, the concession would not extend to the new tenant. Likewise, if the landlord sells the property, the new owner would not be bound by the arrangement.
Not a variation of the lease - any implication that the arrangement constitutes a permanent relaxation of the tenant’s obligations should be avoided. The side letter should therefore make it clear that the concession is not a variation of the terms of the lease.
Landlords may also want the side letter to provide for early termination of the arrangement if, for example, the tenant commits a breach of the lease or the terms of the side letter. This might also apply if the tenant assigns the lease or underlets.
Paul added: “The above are just some of the principal points to consider in relation to side letters. Both landlord and tenant should understand how side letters operate and draft them accordingly using professional legal advice, so that all relevant legal and commercial issues relating to the particular matter can be addressed.”
For help with the specifics of a side letter or further commercial property advice contact Paul Gibbon at [email protected] or on 0114 224 2028
