COVID-19 and the impact for Commercial Landlords and Tenants

Commercial Property - KBL Solicitors

Since the beginning of 2020 we’ve seen an unprecedented chain of events unfold around the world affecting all aspects of people’s livelihoods and life in general as a result of the COVID 19 pandemic. Whilst in the UK, the government have put into place a number of different schemes and support packages to aid as many people as possible affected, a significant number of leased premises across the country are suddenly empty and many commercial landlords and tenants have been left wondering where they stand in respect of rents due under their lease.

In times like this, both landlords and tenants should review their existing leases carefully. The majority are drafted to include a rent suspension clause in the event the property is inaccessible for use due to damage caused by an insured risk. Therefore, landlords are usually able to make a claim on their insurance policy to recover any loss of rent along with repair costs to bring the property back to an adequate state of repair, meanwhile tenants who can’t operate from the premises aren’t expected to make any rent payments until they can take up occupation once more.

The restrictions on businesses and their ability to operate and open as usual which have been put into place by the government at present are not accounted for in the majority of leases which many landlords and tenants are currently subject to. This has left tenants struggling to meet rent demands and landlord’s unsure on how best to tackle this in the current climate.

On 25th March the Coronavirus Act 2020 passed through parliament. This emergency legislation is time limited for 2 years and provides some direction for commercial landlords and tenants specifically relating to the non-payment of rent under Section 82:

Section 82 Business tenancies in England and Wales: protection from forfeiture etc
(1) A right of re-entry or forfeiture under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.

This section prevents a landlord from taking forfeiture action against a tenant for failure to pay rent due under the lease. The “relevant period” runs from 26th March until 30th June however this can be extended and a “relevant business tenancy” is one which Part II of the Landlord and Tenant Act 1954 applies. “Rent” is defined as any sum of money which a tenant is liable to pay under a business tenancy, therefore a wide definition covering not just what is widely referred to as the “rent” due under a lease.

For a tenant who does not pay any rents due during the relevant period the landlord cannot take steps to forfeit the lease however this does not constitute a waiver of the right to forfeit for non-payment by the landlord nor does it prevent the landlord from taking steps to forfeit for a different breach of lease, even if such breach is as a result of the tenant’s inability to occupy the property.

Obtaining possession in the current climate of course raises additional concerns. Firstly, there is the ever-increasing risk of vandalism, an empty business rates liability and the reality of being able to find an alternative tenant to occupy and operate from the premises once matters return to normality. Furthermore, the legislation does not prevent a landlord from taking alternative action such as issuing a money claim for the amount of rent outstanding. Landlords may have other options where rent has not been paid by the tenant, such as drawing down on a tenants rent deposit although terms of such deposit agreements and guarantees would need to be considered carefully. Landlords should weigh up the benefits of using that money to alleviate cash flow problems against the reduction of the value of the lease if the rent deposit is not later topped back up.

A possible solution to protect both parties would be to enter into an agreement to temporarily vary the lease without such constituting a waiver of any terms and restricting any action being taken for failure to make rent payments due.

As the situation surrounding Coronavirus (and consequent legislation) is changing constantly, up to date legal advice should be sought. If you are either a landlord or tenant who wants to discuss the options available, please contact Commercial Property Solicitor, Gillian Hindle on 01204 527777 or Our property team are also on hand for any other property related queries during this time of uncertainty. We’re here to help!

This information is accurate and up to date as of 28 April 2020.