What are your clients' options?

The Retail and Other Commercial Leases (COVID-19) Regulation 2020 was enacted in April 2020 as part of the COVID-19 government support measures. Its intention was to ease the financial burden of businesses with premises or outlets that experienced a downturn in revenue due to the change in economic climate.

Landlords were asked to consider their long-term position and work with their tenants to achieve a positive outcome for both parties. For all intents and purposes, this appears on the whole to have worked, with many reported instances of lessors modifying payment terms short term to help lessees survive.

This article outlines some options we believe you and your clients should consider to prepare for these commercial lease conditions ending. Currently, it is scheduled to end on 24 October 2020, six months after commencement.

More willingness to share financial data

With a greater focus on maintaining occupancy through proactively managing existing relationships, business owners/directors occupying premises should consider being more open with their financial data in return for a better arrangement with their lessor. If a lessor is aware of the ebbs and flows of their tenant's business, they could structure a payment plan that ensures payment is received while allowing a business to better manage their cash flow and retain their premises. 

Renegotiate leases

With certain industries such as retail, travel, and tourism hit hard by the natural and global events of 2019 and 2020, concerns over revenue generation and overall business survival results in a much lower demand for vacant commercial space and a need to secure current tenants until economic conditions can normalise.

This means that forward-thinking landlords can enter into rent negotiations even after these special COVID-19 provisions end. Consider asking your client to think about what concessions could help them survive. Do they need a rent holiday or their existing provisions to extend? Could they be willing to provide a personal guarantee (while being conscious of the risks) or put together a payment plan? Whatever terms business owners ask for, they must do their research to see what else is out there and have the documents ready to support their business case during negotiations. whilst mindful that a landlord is also a business owner with their own financial considerations.

Discuss legal options with a lawyer

As with anything, it is best to speak with an expert. Many legal advisors can discuss the types of agreements available with business owners, their options within their existing lease terms, and to help renegotiate, terminate or resolve any issues or disputes.

Consider appointing a voluntary administrator

It is now more important than ever for a business owner with premises, and therefore large overheads, to consider the options around their operating model. Often a health check assessment and seeking further capital through debt or equity can be options available outside a formal restructure. However, sometimes the expense of a business restructure is too great and the need to formally restructure through a voluntary administration is necessary to overcome cost and contract hurdles.

A voluntary administration offers a collaborative approach to satisfying the company's debts. It restrains creditors from enforcing their claims and can assist a company to trade out of short-term difficulties caused by cash-flow restrictions or one-off financial problems. When appropriate, it can also provide a way to restructure a business or the company itself to revive it to a healthier financial position.

Worrells provides specialised distressed asset restructuring and investigative accounting services; and all other types of formal insolvency appointments such as liquidation and bankruptcy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.