Commercial Leases: Rental Payments During the Coronavirus Crisis - 25 March 2020

25 Mar 2020

Today is one of the usual quarter days on which many tenants of commercial leases are due to pay rent. But the Covid-19 pandemic means that there is nothing usual about the current situation.

We have been approached by a number of landlords and tenants over the last few days, who have been looking for a greater understanding of their rights and obligations as they try to navigate these uncertain times. Meanwhile, we have been looking to advise on the impact of the emergency Coronavirus Bill, which is currently at the committee stage in the House of Lords.

Coronavirus Bill

For landlords and tenants, one of the key points to note is that, for a relevant business tenancy, any right of re-entry or forfeiture for non-payment of rent will be temporarily suspended. This moratorium is set to last until 30 June 2020, but may be extended, depending on how the situation develops.

This should come as welcome news for relevant tenants who are struggling in the current economic climate, and who will no doubt be relieved to learn that their landlord will not be able to forfeit their lease during this period for non-payment of rent. Of course, the landlord’s pressure points are diluted. But tenants are not off the hook and the landlords are not powerless.

What this emergency provision does NOT do is relieve tenants of the obligation to pay rent during this period. It is important to stress, for both landlords and tenants, that this does not mean that tenants will not have to pay rent during this period. It will still be possible for landlords to demand rent and it appears that other remedies will remain available, in order to enforce payment. This is thus not a ‘catch all’ solution for tenants experiencing cash flow problems, and there are other key considerations landlords and tenants should be aware of. Not least, it is only a suspension of forfeiture, and the landlord’s right to forfeit is not waived.

Whilst this provision removes an important weapon from a landlord’s enforcement weaponry, in a time of such uncertainty the desirability of forfeiture and having an empty property is unlikely to be attractive to landlords in any event. That said the move is designed to give comfort to business tenants that they do not run the risk of eviction.

Landlord whose tenants don’t pay should consider:

• Reminding tenants that they are still obligated to pay the rent.
• Drawing from a rent deposit account, although landlords should be cautious procedurally.
• Looking to guarantors and other available remedies including other tenant breaches of covenant and whether the UK Government’s support for business offers the landlord or the tenant support in other ways.
• Seeking advice regarding relevant lease clauses. Landlords will need to know if the lease includes a relevant rent suspension clause, although this usually applies to damage to a building.
• If rent is suspended, whether this is covered as an insured risk in the lease, for which they could make a claim. Other insurance options.

Tenant who can’t pay their landlords should consider:

• (As with landlords), tenants need to know if the lease includes a rent suspension clause covering their circumstances.
• Obligations they have to top-up their deposits after the landlord makes a withdrawal.
• If they can offset cash flow problems by taking advantage of any relief for which they may be entitled under the Coronavirus Bill, such as a business rates rebate.
• If they are obligated to serve notice on their landlord, if they will leave the premises vacant for a prolonged period.
• Any other requirements of insurance policies.

 Market considerations

Landlords may struggle to find a new tenant, even after the relief from forfeiture is lifted, and should consider a strategic approach. This could mean highlighting some of the available reliefs, of which tenants may be unaware, or temporarily waiving an obligation to top up a deposit within a short period. Whilst it is worth knowing that harsh remedies remain in landlords’ arsenals, this does not necessarily mean employing them during a first round of negotiations.

For tenants, landlords are generally sympathetic to those in industries which simply cannot operate, such as leisure and entertainment. Landlords are, however, concerned by tenants who may simply be ‘trying it on’. In any event, tenants would do well to convey any difficulties to their landlord sooner, rather than later.

There will of course be a variety of other issues to consider, and each situation may be slightly different. The Government wants parties to cooperate and help each other through the crisis. Both landlords and tenants may need help navigating that process and surviving at the other end.  For any landlord or tenant experiencing difficulties collecting or making rental payments, or looking for advice on how to approach matters, Asserson’s property litigation team are available to provide assistance.

Please contact: Elliot Lister and Aaron Churney

This is a summary of some of the issues landlords and tenants should be aware of, and is based on limited information available at the date of writing. It should not be relied on as a substitute for legal advice on any specific situation.

Article written by: Elliot Lister and Aaron Churney