Hotel rents: Negotiation tips for tenants and landlords

Elisabeth Heide Elisabeth Heide Uploaded




Elisabeth Heide, senior associate at Taylor Wessing, offers some guidance on negotiating leases and enforcement options for landlords.

The COVID-19 pandemic continues to impact the hospitality sector and we are starting to see the ripple effects. The continuing closure of hotels has a detriment impact on the commercial real estate sector as hotels are often subject to leases.

If a hotel is forced to close its premises, it will still need to continue to pay rent. Many commercial rents were due on the March quarter day and we understand that non-payment of rent could eventually be the only option for some tenants.

As a consequence, our real estate team has prepared a useful summary of the likely concessions and remedies that a landlord may take on non-payment of rent, access it here.

What concessions can be agreed in the event of non-payment of rent

Leases will usually not include any provisions to suspend rent in the event of a pandemic. However, in these unprecedented times the parties might be more inclined to agree on concessions if the tenant can’t pay. Concessions could include:

- Switching to payment on a monthly basis.

- Switching to payment in arrears.

- Agreeing a form of payment plan to spread payment of current debts over the course of a future period.

- Agreeing to temporarily reduce the rent.

- Agreeing to temporarily suspend collection of rent altogether.

What enforcement options are there for a landlord in the event of non-payment of rent

It is worth noting that any agreement on concessions would be entirely voluntary and agreed on a personal basis with the current tenant only. If no agreement is made, a landlord has several enforcement options available to it in the event on non-payment. The usual enforcement options are:

- Forfeiture – See our memo on the Coronavirus Act 2020 in relation to restrictions to forfeit/terminate commercial leases on the ground of non-payment of rent. Read it here.

- Issuing a debt claim at Court - A debt claim for unpaid rent ought to be simple to run. However, it could be difficult to enforce, unless the tenant has assets.

- Rent deposit withdrawal – Drawing down on a rent deposit would solve the immediate issue, but it would dilute the investment value of the lease if the deposit wasn't then replenished. Failure to replenish may give rise to a right to forfeit in itself and drawing down on a deposit would solve any immediate cash flow concerns.

- Guarantor claim – If the landlord is lucky to have a guarantee from a strong covenant, this could be a good option, provided that guarantor isn't facing similar financial problems itself.

- Statutory demand – The landlord might threaten to seek a compulsory order to wind up the tenant if it doesn't receive its rent. Such a demand would be very hard to ignore for a tenant with assets.

Taylor Wessing, a full-service international law firm, works with clients from across many industries and sectors. The company has a long history of advising on all manner of hotel, restaurant, travel and tourism projects and transactions around the world. These range from management and franchise agreements; to buying and selling businesses; to funding, construction, planning and development.

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