COVID 19 – The Top 4 Q&A for Commercial landlords & tenants
In these unprecedented times we have received a huge number of enquiries from both our commercial landlord and tenant clients wanting to know where they stand in light of Covid 19. The most common queries are below but please do contact us if you have any further questions or require any clarification. We appreciate these are extremely challenging times, but we are here to help.
Q – Can a tenant terminate their lease?
Assuming there is no break clause, the only other contractual remedy for a tenant would be a “force majeure” clause. These clauses allow a party to bring a lease to an end if the prescribed circumstances are present but very few leases contain such a clause. If you are unsure, please ask and we can check for you.
Outside of the terms of the lease, there is a common law remedy called “frustration” which would apply if an event occurs which makes it impossible for the lease obligations to be performed. On the face of it you would think Covid 19 is such an event but the threshold for proving frustration is extremely high. Most commentators think that Covid 19 would not entitle tenants to argue their lease is frustrated (although we are sure it won’t stop some from running the argument).
Q – Can the tenant stop paying their rent?
There is no statutory “rent holiday” for commercial tenants under the Government’s new Coronavirus Act and the usual rent suspension provisions typically only apply where the buildings have been damaged or destroyed. Therefore, contractually, most tenants will be required to continue paying their rent.
However, we are seeing lots of landlords and tenants working together to get through these challenging times. This often includes the landlord agreeing a temporary concession with the tenant which might include:
• A rent free period; • A discounted rent; • A rent deferment (there is still an obligation to pay but a payment plan might be put into place); • A service charge reduction; • A change to the manner of payment (change to monthly rent rather than quarterly or accepting payment in arrears rather than advance).
Whatever you agree it is crucial that the arrangement is properly documented, and we would recommend you speak to one of our team as soon as possible. Together we will need to consider:
• Will the concession be personal to the parties or benefit successors? • How long will the concession last? • Will there be a mechanism for terminating the concession early (if, for example, the current closure requirements are relaxed). • Will interest be payable on any deferred rent? • Do we need to obtain the consent of any guarantors to the concession (failure to do so could release the guarantor from their obligations). • The impact of the concession on other terms of the lease (break clauses/rent reviews etc).
Q – Can a landlord terminate a lease for non-payment of rent?
Assuming a tenant has been unable to agree a rent concession with their landlord, can the landlord terminate the lease for non-payment of the rent? In short, the answer is not at the moment. The Coronavirus Act provides that the usual right of entry (or forfeiture) under a business tenancy for non-payment of rent may not be enforced between 26 March to 30 June (or such later date as may be specified). It does however provide that, during this period, no conduct (other than an express waiver in writing) shall waive the landlord’s right to do so afterwards. Therefore, tenants need to appreciate that:
• (as stated above) rents are still payable in this period. • as it stands, a landlord could seek to re-enter the premises immediately after 30 June for non-payment of rent during this period.
It has to be said that most landlords would not want to terminate the lease in the current climate and will be prepared to take a longer term view.
Q – What other options do I have if a tenant does not pay?
Each lease will be different, and we will happily review the lease with you but some options may include:
• Charging interest on late payments; • Drawing down under a rent deposit; • Pursuing a guarantor; • Issuing debt recovery proceedings; • Using the commercial rent arrears recover (CRAR); • Serving a statutory demand.
We are sure most landlords will want to work with their tenants and avoid being overly aggressive but may still want to know where they stand and what their options are should the current situation continue. Please do contact us on 01752 663295 or email info@wolferstans.com and we would be glad to assist.