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Wednesday, 8 July 2009

10 Top Tips for Commercial Tenants in Crisis

In a previous post, I gave Landlords top tips for dealing with Tenants in financial difficulties. In this posting, I set out 10 top tips for Tenants who are struggling in the current financial conditions. Here are the points which Tenants should think about:

1. Check your lease for break clauses to get out of your lease early. Make sure there are no onerous pre-conditions to exercise the break such as compliance with the Lease covenants and if so get advice on whether this will prevent operation of the break option.

2. Is the Lease assignable or sub-lettable? If so, check pre-conditions, obligations to provide Authorised Guarantee Agreements and personal guarantees and rent deposits.

3. Negotiate monthly rent payments with the Landlord or rent holiday or a rent decrease

4. Negotiate surrender of Lease with your Landlord. The Landlord may well want a surrender premium. The premium should equate to the time it takes the Landlord to re-let the premises but the Landlord might consider it should equate to the rent the Landlord is owed for the residue of the term.

5. Negotiate a release of any personal guarantees given to the Landlord. Of course, the Landlord will want money for this and is extremely unlikely to concede but no harm in asking.

6. Tenant could consider liquidating the company if it is trading as a limited company. There is a possibility that the directors could be sued by creditors for wrongful trading or trying to avoid paying creditors and might even result in directors being disqualified from acting as a company director.

7. The Tenant could speak to business recovery specialists/insolvency practioners with regards to a pre-pack adminstration. Again, this needs proper advice and may not always be available as an option.

8. The Tenant could find a sub-tenant to take the premises or part of the premises on a Sub-Lease.

9. The Tenant could open a discussion with the Landlord and its surveyors to come clean about the position and try to find a solution. It is in the Landlord's interests to have a dialogue and it may be that an innovative solution can be found.

10. The Tenant could speak to his solicitor to see if there are any other options which might be available.

The one thing a tenant should not do is bury its head in the sand and hope the issue will go away. It is always a good idea to confront the issue head on and get some good advice. The situation may be better than the Tenant thinks.