Commercial Property and Covid 19

Paying commercial rent during lockdown – do you have options?

Property Litigation: Protection From Eviction and Managing your commercial property

The Coronavirus pandemic is putting a particular strain on the commercial property sector. Social-distancing measures and the closure of non-essential businesses have left many business owners unable to use their premises. New provisions brought in in by the UK government are attempting to mitigate some of the fallout. Below, we summarise these new provisions and provide advice on how landlords and tenants can navigate commercial leases and their rents at this time.

What are the changes?

Provisions in The Coronavirus Act 2020, which came into force on 26 March, temporarily prevent businesses thatare struggling to pay their rent,as a result of of the lockdown, being evicted. S82 of the Act provides for a moratorium on lease forfeiture, meaning tenants cannot be evicted from premises for non-payment of rent until at least 30 June 2020. This will come as a relief for tenants in commercial properties whose businesses and cash flow have been significantly affected, such as those in the travel and leisure sectors. However, be warned the freeholders are using alternative means to litigate against their tenants , as discussed further below.

Can a tenant stop paying rent?

This provision does not however, suspend the lease and the tenant will still be liable for the rental payment during this period and will have to make this payment after the three months unless agreed otherwise. Most modern leases will have a clause ensuring that they cannot withhold rental payment. Any ability for the tenant to suspend paying rent would depend on the particular terms of the lease or negotiation with the freeholder.

It is also important for tenants to be mindful that, although they are protected from forfeiture, they do not gain any rights to reuse rent that is due, and a petition could still be made by the landlord to wind up the tenant’s company and bring legal proceedings against them as this will be an undisputed debt. It would be debatable whether a landlord would want to do this in the current situation and risk having empty premises in the future, but if they hold a large deposit you may lose this. It is important for tenants to speak to their landlord first or to seek legal advice and to not simply refuse to make payment as their maybe a deal or compromise to be made.

Can a tenant terminate a lease?

Unless a lease is ending or they have a break right, a tenant will not be able to terminate a lease using Covid-19 reasons. While it could be argued that that the coronavirus outbreak is a force majeure event, meaning an act of God,there would have to be a specific clause within the lease allowing this which, again, would be highly unlikely to be upheld.

What can a tenant do?

Tenants and landlords may be able to come to an agreement outside of the lease by way of a side letter and this may represent the most desirable solution.

For those tenants already struggling, it may still be worth them offering some form of payment plan. For example, offering to pay a March quarter rent payment, already missed, in monthly instalments. If this is refused by a landlord, it may act as mitigation, as a payment plan has been suggested rather than simple refusal to pay.  However, this would be specific to every case and a landlord would still be able to enforce their rights to enforce recovery, legal advice should be taken in this situation. You should look at whether you qualify for business rate relief or a government grant.

Speaking to the landlord to come to an agreement should always be the first step as a form of pre-emptive mitigation. There could be an agreement for a temporary reduction in rent or a moratorium on payments for a certain number of months. It will likely be in the landlord’s interest to maintain a current tenant. Formal legal advice should be taken on such arrangements and agreements should be reviewed by a property litigation specialist as you should clearly document any agreement reached.

At this difficult time, we can help. Get in touch to speak with one of our Property Litigation Specialists by contacting lucy@acitylawfirm.com