There is no denying that businesses across all sectors are experiencing a plethora of challenges in the current economic climate and ongoing costs like rent and energy bills can be too much of a burden for many. In fact, commercial leases are some of the biggest costs experienced by businesses and it will be an incredibly stressful and daunting time if you are struggling to pay rent. While the options available to you to address this situation will vary depending on the exact terms of your commercial lease, there are proactive steps you can take to overcome your difficulties paying rent.
Examine Your Lease Agreement
Before jumping to any conclusions or getting overwhelmed at the prospect of your next rent payment, make sure that you are fully aware of the terms of your commercial lease agreement. This legal document will lay out the full terms and conditions of your lease, including how long the agreement will last as well as the action that the building owner or landlord can take if you fail to abide by the terms of the agreement. Understanding these terms is key to acting legally as you plan your next steps.
Upon investigation, you may also discover that your lease ends sooner than expected. In this case, you may decide that the business is capable of weathering the storm of rent payments for a little while longer with the view to moving to smaller or cheaper premises when the lease expires. Similarly, some commercial leases contain a break clause which allows you to legally exit the agreement early and stop paying rent to the landlord. While this type of clause is not particularly common, it is still worth checking to see if your lease has a break clause as this could very quickly help your business to alleviate the pressure of rent payments it cannot afford.
Negotiate With Your Landlord
Once you have familiarised yourself with the terms of the lease agreement, the best thing to do is enter into negotiation with your landlord. Being open and honest is key if your business is struggling to pay rent and you may find that your landlord will be more open to helping you through a difficult period if you speak to them sooner rather than later. Even if there is no break clause in your commercial lease, see if your landlord is willing to consider other options which may enable you to exit the lease entirely or better manage rent payments.
Some options you may be able to explore include:
- Subletting the lease to another suitable business, should the landlord agree that they are happy for you to do this.
- Forfeiting the least early. Do note that it is unlikely the landlord will agree to this as they will essentially be losing out on any income they could make from the premises. However, they may be more willing to consider this option if you have already found a suitable business to take over the lease from you.
- Payment holidays or payment plans. If your inability to pay rent is a short-term problem and you anticipate future recovery, your landlord may be willing to temporarily suspend rent payments or agree that you can pay rent in smaller instalments over a set period.
Remember that it is entirely up to your landlord as to whether they will be willing to negotiate with you if you are struggling to pay rent. By entering into the commercial lease in the first place, you agreed to abide by its terms at all times. Failure to pay is a breach of these terms and therefore your landlord does not have to agree to any alternative payment methods or terms.
Consider Restructuring The Company
In some cases, considering a wider business rescue plan may be a suitable way of addressing immediate rent concerns. You might wish to consider restructuring your business by making changes to your business model, operations or organisational structure and free up cash that can be better allocated to rising costs such as rent. Small tweaks such as addressing inefficiencies and streamlining your staffing structure can create significant savings and relieve financial pressure. However, it is important to plan these kinds of measures carefully as they may create concerns among the workforce and other stakeholders if you fail to communicate the reasons for them effectively.
Explore A Company Voluntary Arrangement
Alternatively, if your business is struggling to pay rent, you could consider a more formal process such as a Company Voluntary Arrangement (CVA). The inability to meet the terms of your commercial lease may indicate wider financial difficulties and possible company insolvency. In this case, it’s vital that you formally address these problems as quickly as possible if you wish to continue operating.
A CVA allows you to do exactly that, as it involves restructuring your debts to creditors and agreeing to repay liabilities over a set period of time. This formal process can make a large commercial lease much more manageable, allowing you to continue business free of pressure from your landlord providing you meet the terms of the arrangement.
Whichever of these options is most suitable for your business, prompt action is paramount if you are struggling to pay your rent and it is highly advisable to seek professional advice from a business rescue expert if you find yourself in this situation. Getting advice not only ensures you are aware of the different options available to you but also ensures that you have a deeper understanding of the most suitable in your unique circumstances.
To speak to a trusted professional, get in touch with our team of business rescue experts at Ballard Business Recovery. Our team can provide prompt and clear advice and walk you through the more formal processes like a Company Voluntary Arrangement if appropriate.
