Monthly Rents

Landlords agreed for commercial rents to be paid montlhy has hit the headlines in the property press. But what are the legal implications to the lease for both landlord and tenant ?

Most commercial leases specify payment of rent in advance on the usual quarter days. If a tenant fails to pay the rent on that day (or within, say, 14 days) the landlord will typically have a remedy such as forfeiture (re-entering premises to bring a tenancy to an end), distraint (seizing goods as security for the unpaid rent) or court proceedings. Contractual interest on arrears is also likely to run from the quarter day.

In these straightened times, if a landlord agrees to a tenant paying the quarterly payments by equal monthly instalments to help with cash flow, what happens if the lease itself is not formally varied?

Technically the strict obligation to pay the quarterly rent on the quarter day carries on. Therefore the tenant is in breach of the terms of the lease by paying by monthly instalments but by agreement from the landlord. Because the landlord agrees for the tenant to pay monthly, the landlord would ordinarily be estopped or prevented from using the strict terms of the lease to pursue remedies against the tenant for non payment of rent.

The agreement to pay monthly is normally a personal concession to the tenant unless there is a formal variation of the terms of the lease. So when a lease is assigned the incoming tenant should not assume that an informal variation to pay monthly will continue in their favour.

Another interesting scenario is when a tenant becomes insolvent during the quarter when some of the monthly instalments are outstanding. If a landlord anticipates the tenant’s insolvency he is likely to want to forfeit or distrain before the declaration of bankruptcy or winding up order is made.

If the parties have not addressed the issue of default on the monthly payments a landlord may not be able to enforce the strict terms of the lease and treat the concession as at an end.

To vary the terms of a lease normally the variation must be agreed in writing and to comply with statutory provisions on variation of leases. An oral agreement will certainly not amount to a formal variation nor will a simple exchange of letters. However a landlord may still be bound by his promises by the rules of equity.

The moral of the story is that if you want to receive rent by instalments you need to be certain about what you are agreeing and what happens if the tenant does default. When deferring the payment of a quarter’s rent, both landlord and tenant must consider what they are agreeing to vary. Are they are agreeing to a change in the due date for payment or the method of payment of the quarter’s rent, which will still be due on the quarter? There is a significant difference between the two. 

Contact Richard Bagwell for further information or advice.

Published 21/10/2008. The author of this article is Richard Bagwell