Fixed costs are immediately coming under strain due to the coronavirus (COVID-19) outbreak. This includes regular rent payments due to landlords every month or quarter. If you’re a business that’s already worried about how to make future payments, then this guide is for you.
The first thing to remember is that the government has made several announcements designed to help businesses during the current crisis. These include a policy that until 30 June, commercial tenants who can’t pay their rent because of coronavirus will not be evicted.
Even with such measures in place though, you may be starting to think about a conversation with your landlord about future payments on rent.
This guide is designed to give you a step-by-step guide to going through that process.
Got 2 minutes? Read our useful checklist on how to negotiate with your landlord
Got 10 minutes? Learn more about how to negotiate and your rights in our step-by-step guide below
Property and the coronavirus
The government has already recognised that property-related costs will quickly become a challenge for many business owners. As well as the policy on avoiding evictions put in place, it has also announced a business rates holiday for companies in the retail, hospitality and leisure sectors.
The private sector is also considering what it can do to help on property-related costs. Some electricity and gas companies are willing to talk about potential bill deferrals as well for example.
However, even with this range of measures, a conversation with your landlord about rent is likely to be necessary at some point. We don’t yet know how long the pandemic will last and when a return to normality will come. Preparing yourself for that rent conversation is worth doing now.
The checklist: What to know before you negotiate
Negotiation is often described as an art form, but there’s some key preparation you can do to help as well.
- Take the time to build your case: gather your strongest arguments before you start the conversation. This includes your track record with the landlord, demonstrating your payment history and relationships with neighbouring tenants. Think about your future intentions and how long you’d like to stay in the property post-crisis as well
- Prepare and practice the conversation: it’s going to be one of many difficult discussions you will have over the next few months, so prepare accordingly. Get a friend or colleague to throw difficult questions at you and practice keeping your cool
- Check your rights: if the negotiation doesn’t go as planned and you reach a situation where you feel it will be better to leave, then make sure you know your rights before committing to a final decision or signing any paperwork. The last thing you want is to be out of pocket or premises when you don’t need to be
- Remember how they’re feeling: landlords are under pressure as well because of the coronavirus. Most will be looking for constructive solutions and above all, tenants to fill their properties. The last thing they want is empty premises and no prospect of future rent payments for months on end.
Preparing to negotiate: what to consider and what to read
Very few people will go into this kind of conversation on rent believing they’ll enjoy it. It’s one of the harder conversations you’re likely to have at any time, but especially so in times of distress like now.
To try and help you prepare for and deal with this, work through the following steps and read some of the advice that we’ve sourced.
Step 1: Research and clarify your options
We’ve already noted the relevant government measures available on property and property-related costs above. In particular, the policy that landlords cannot evict commercial tenants for missed rent payments up to June is vital to read.
It is important to note that details on this scheme are still being drawn up, and that it applies in England, Wales and Northern Ireland but not Scotland. Keep checking back for further updates on this.
Beyond government support though, the first step before you negotiate with your landlord is to do your wider research. You need to brush up on the legal and commercial aspects of both your own rental agreement, and your rights and responsibilities more generally. A good list of these has been drawn up by Leathes Prior solicitors. The official government guide also has a wealth of information and a good checklist of the basic responsibilities.
On the other side, there is a good summary of the options landlords are allowed to take when renters fall behind or can’t make payments. The same website also has an article detailing the options you might want to consider putting to your landlord if you can’t pay.
This is time consuming, but the more you know about the rights and responsibilities, the stronger your negotiating position will be – and the less chance there is of being forced into something that you don’t need to do.
Step 2: Get everything well prepared
“Negotiating a commercial lease is an art” according to Saracens Solicitors and it certainly helps if you are a confident speaker, negotiator and even salesperson.
However, a solid list of arguments is just as important as your delivery of the sales pitch. Parts of your case to think about and build include:
- The length of time you’ve been on the premises already
- Your track record on health and safety, fire safety and other similar measures
- Your relationships with neighbouring tenants during your occupancy
- Your track record on rent payments
- Anything else that you’ve done that has contributed to being a good tenant
Given the current situation, it’s worth asking other businesses how they are approaching this issue as well. If you haven’t already, speak to your local Chamber of Commerce to be connected to other businesses.
Finally, make sure you review your current arrangements carefully. There may be elements of your existing arrangement that you would be willing to change or waive as part of negotiating an overall rent reduction or rent holiday.
Step 3: Practice and then negotiate
Some people are natural negotiators. Others are deeply uncomfortable in this situation. Everyone, no matter which camp they’re in, should practice before the real thing.
The American magazine, Harvard Business Review, has an in-depth article about the psychology of negotiation. It looks in particular at how to handle a negotiation when the other side holds the upper hand. Among the article’s advice is that:
- Sometimes, being in the less powerful position can give you a better ability to assess what the other party wants, and how you can meet that
- They need you, just as much as you need them. This is certainly true at present – there aren’t going to be a lot of businesses looking to fill premises if you leave
- Prepare, and always have a back-up answer if your first suggestion doesn’t go down well
- Empathise and ask questions. Your landlord would probably welcome the chance to unload some of their concerns with a fellow business owner
- Keep your cool, even when the other side becomes aggressive or angry
- Stay flexible and be ready to adapt what you’re willing to compromise on as the discussion evolves
There’s more good advice from Inc.com on how to negotiate in lots of situations.
The other thing to bear in mind is to prepare for the unexpected. Your landlord will be feeling under pressure about their own financial prospects. It’s likely they’re having these kinds of conversations with most of their tenants across their portfolio. And just like you, they’re probably juggling these business challenges with looking after family during the current pandemic.
A good negotiation is a calm negotiation, especially in the current situation.
Step 4: Follow-up and record the agreement
Hopefully, you reach a good outcome once you negotiate with your landlord. Even if you don’t though, it’s important to document and follow-up afterward.
Written confirmation of your agreement is vital, whatever the outcome. You might want to consider consulting a commercial property lawyer as well, who can help update or review your new agreement.
The other thing that’s worth doing is updating your staff. We’ve published advice elsewhere on how to engage with your staff more generally during coronavirus, but it’s worth considering an update if you get a positive outcome on this negotiation.
Finally, continue to check for new measures from government. Policy continues to be updated daily, and it’s possible more assistance on rent and other property-related measures could be on the way.
Don’t forget about our helpful checklist, designed to help you prepare for your landlord negotiations.