It is impossible to predict the scale and scope of the changes to Irish businesses that will be brought about once the United Kingdom leaves the European Union on 29 March 2019. While there are many unknowns it is likely that the greatest impact to landlords and tenants, at least in the short term, will be market instability. This article aims to provide some guidance to prospective landlords and tenants in negotiating terms to a lease in an ever uncertain environment.
The landlord and tenant relationship is dominated by the terms of the lease and reasonable negotiations can allow both parties to protect their position and proceed with caution until the commercial landscape has settled.
Key Steps for Landlords
A landlord can employ the following measures to avoid being left with either a vacant property or a tenant in arrears:
- Carry out a thorough due diligence of the tenant before entering the lease. Are they a business reliant on trade with the UK or with a parent UK Company? If so, stronger protective measures may be required.
- If there is a concern that the tenant could be significantly impacted, review its recently filed accounts as you may require a guarantor join in the lease to ensure payment of the rent into the future.
- If the tenant is based in the UK, the lease should clearly state that the terms and conditions of the lease will be governed by the laws of the Republic of Ireland.
- Agreeing a reasonable break option and rent review clause will allow the Landlord to commit to an agreement in the short term that can be reviewed once the impact Brexit will have on the tenancy is better understood.
Key Steps for Tenants
A tenant can also seek to strengthen their position and avoid becoming committed to an unsustainable term and rent by requesting the following inclusions in the lease:
- Either a shorter term lease or an earlier break option will provide the tenant with some flexibility in the event that the consequences of the UK leaving the EU are greater than initially anticipated.
- A reasonable rent review clause based on market rent will allow the tenant to negotiate future rent once the full impact of Brexit is apparent.
- A broader user clause may also allow the business to adapt if a change in the nature of the business is required.
- If the tenant is concerned that it may not be able to maintain the full rent going forward it may be appropriate to request that the lease permit the tenant to sublet part and share the space with another business. This could provide another revenue stream and take some of the financial pressure off the tenant.
For leases already in existence, it is worthwhile reviewing the lease carefully to see if any of the provisions listed above have been incorporated. There are often lengthy notice periods and specific conditions which must be satisfied in order to successfully utilise a Break Option. The timelines and conditions must be carefully reviewed and considered in order to avoid an invalid termination of the lease.
The most immediate concern to both Landlords and Tenants is market instability. If a deal is reached prior to the exit date of March 29th there will be an extended transition period which would allow landlords and tenants more certainty and therefore more comfort in agreeing the terms of a lease going forward. While the impact of Brexit cannot yet be ascertained, a reasonable approach by both landlords and tenants in negotiating a lease which is cognisant of a challenging commercial environment will permit some stability and allow both parties to weather the storm ahead.
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For further information, please contact Sarah Byrne firstname.lastname@example.org at Hayes solicitors.
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About the Author
Sarah is an associate solicitor in the Property and Private Client team. She has worked with a wide variety of clients throughout her career, and has extensive experience advising clients in relation to a broad range of transactions. In particular, Sarah has acted for clients in relation to the purchase, sale, mortgaging and refinancing of both residential and commercial properties.