Commercial landlords and tenants are having some fun right now. I know some of you from both camps are having issues.
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A tenant’s view of what is a fair rental is a bit different to what some landlords think. Yes, the focus right now is getting the immediate problem sorted – namely a rental that is fair to both landlord and tenant in the short term. Everyone is talking about clause 27.5 of the lease – nobody even knew it existed 4 months ago!
Clause 27.5 is the clause saying that if the tenant can’t get into the premises due to an emergency then “a fair proportion of the rent and outgoings shall cease to be payable”. That’s great but nobody really knows what a fair proportion is. Even now. And each situation is different anyway.
The problems have been where either a tenant refuses to pay anything (and refuses to leave) or a landlord simply ignores the tenant’s request to discuss what’s fair.
It’s all very messy.
But what is even more interesting is what’s coming. Just think about it for a moment:
- Most people, as long as they are a little bit tech-savvy, now realise that they can get work done without having to be in the office – do you think its possible that some businesses will probably make do with less space in the future? Already its easy to see that there is more commercial space available for tenants to pick from.
- When leases expire, is there a possibility that tenants will want a wee chat with their landlord about changing a few things in the lease if they’re going to stay on? For example:
- Should the no access period be much less before the tenant can cancel the lease? Currently the standard is 9 months unless you change it. Most people probably don’t even look at it. But 9 months is a long time to be stuck and not able to move on.
- Should the rent review provisions be revamped – maybe rental should be a base amount plus a percentage of turnover.
- Maybe there should be no ratchet clause, after all why should tenants be stuck with a rental that is 40% above current market rental (as is happening now in some cases)?
- Should tenants sign up for a 10 year term when it is better and safer to split that into a 4 year term plus two 3 year rights of renewal?
- Should the tenant even have to get the Landlord’s approval to sublet some of the space? After all, the tenant is still obligated to pay the landlord rental. I can understand it if the subtenant might be competing with another of the Landlord’s tenants next door. But if the Landlord didn’t own the property next door it wouldn’t even be a conversation.
I can tell you, in future when business clients are looking for a space to lease, not only will we be taking a hard look at the lease, we’ll also be asking our clients what they know about the Landlord. What has been very clear from this covid mess is that there are good landlords and “other” landlords. Also remember things won’t always be in favour of the tenant, just like some landlords are finding now that things aren’t always in favour of them.
So you know what that means: