Given the unprecedented announcements from the UK Government over the past few weeks, commercial landlords and commercial tenants are now under extreme pressure, which will almost inevitably impact on the tenant’s ability to pay rent and both parties’ ability to comply with their covenants under the lease.
In the first instance, check any relevant insurance and obtain a copy of your insurance policy to confirm whether the current situation allow your tenant (or you as the landlord) to make a claim. Some leases include a provision for suspension of rent in the event of an insured risk although these tend to apply to circumstances where the property itself is damaged.
Secondly, almost all leases will, inevitably include provisions to pay rent. If the tenant fails to pay rent, then you as the landlord have a number of options, including forfeiting the lease, distraining on goods (i.e. seizing them), issuing a statutory demand and/or a winding up petition or simply issuing proceedings to recover the outstanding rent plus interest and costs.
Almost all commercial leases allow the landlord to forfeit the lease (which may be done by changing the locks without the need for any warning or court action) if rent is unpaid. In addition, the majority of leases prohibit the tenant from setting off (reducing) rent in relation to any breach of the lease by the landlord.
Extra protection for businesses with ban on evictions for commercial tenants who miss rent payments
The Government has also, recently announced additional provisions in the draft Coronavirus bill, which is currently going through parliament.
These include protection for commercial tenants that are unable to pay rent due to the Coronavirus, over the next three months.
The bill is awaiting royal ascent and will apply to 30 June 2020, with a further option to extend this period.
In certain circumstances, a commercial lease might also allow one or other party to suspend their obligations (including rent payment) in certain specific events that are outside either party’s control. These are referred to as “force majeure” events. Many leases, particularly older leases, do not include these provisions. However, if they do, then the terms of these provisions would need to be reviewed carefully to confirm whether the current situation applies and, if so, what the effect is.
In the event that the tenant is unable to remain open, the following points are potentially relevant: ·
If the tenant is unable to operate it is potentially possible to argue that the lease has been “frustrated”, which could allow one or other party to terminate it. However, this would be difficult to argue, particularly if the closure was only temporary and the tenant may not wish to terminate its lease. ·
The tenant may also have specific obligations to remain open although it is very difficult to predict how the landlord would be able to enforce this obligation in the current circumstances.
It is also possible that the landlord may be in breach of their obligations to provide services and/or access, in which case, this may form grounds for the tenant to claim damages or terminate the lease in more extreme circumstances. However, it is also likely that the landlord’s obligations are limited to events within its control.
The Government has made a number of announcements, including the following, which tenants should also look into:
- a Statutory Sick Pay relief package for SMEs
- a 12-month business rates holiday for all retail, hospitality and leisure businesses in England·
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief·
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank·
- a new lending facility from the Bank of England to help support liquidity among larger firms, helping them bridge coronavirus disruption to their cash flows through loans·
- the HMRC Time To Pay Scheme
Finally, bearing in mind that there is a significant possibility that both parties may be in breach of one or more of their obligations, and assuming that neither party wishes to terminate the lease, then as discussed this would be a potential opportunity to seek to negotiate a rental reduction and/or suspension on a case by case basis.
The Government are getting new legislation through to give tenants extra protection but it has not yet gone through yet. i.e. it will put a ban on evictions for commercial tenants who miss rent payments
It is likely that there will be further assistance provided, particularly in the event that Government have ordered some businesses to close, and we recommend that you review the position regularly and take legal advice from Perrin Myddelton’s commercial property solicitors. Please contact our Paul Dutch on firstname.lastname@example.org on any query on Covid-19 and its effect on commercial leases. Perrin Myddelton can also advise on Covid-19 rent concession letters.