Firstly, I would like to apologise for the misleading headline, I have used the word “cure” lightly, perhaps I should have used the word “plaster”.

To all the commercial property and business owners out there, I feel your pain. As I type this blog, there is a sinkhole in our economy, countless businesses are in the red and are trying to keep afloat.

While, the Government have tried their best to dampen the blow of the effects of the Coronavirus (“CV”), this doesn’t mean that all your problems have vanished and still doesn’t mean you are generating any revenue.

While I don’t have any magical powers (but I can see the future – keep reading), all I can offer are some pointers for things to do in these unprecedented times as a commercial landlord or tenant. I urge you to get in touch with our commercial property team to discuss your legal rights and obligations, steps which can be taken to recover unpaid rent and any other measures to aid business continuity.

Many of you will be aware of the recent enactment of the Coronavirus Act 2020 (the “2020 Act”). The 2020 Act seeks to protect commercial tenants from their leases being forfeited (terminated) as a result of the non-payment of rent (which includes any sum a tenant is liable to pay under a business tenancy). This is to prevent landlords either from effecting forfeiture or, if they already have an order for possession to be enforced, enforcing a possession order, between 26th March 2020 and 30th June 2020 (n.b. this date can be extended).

For the time being, tenants will not lose their business premises, however, whilst a moratorium on lease forfeiture is currently in place, refusing to pay the lease rents could still entitle the landlord to take other action for non-payment of rent, such as: -

1. Issuing a petition to wind up the tenant company;
2. Instructing bailiffs to collect goods of the value of the lease rents;
3. Making a claim for losses/payment in the Court; or
4. Opposing a renewal of a secured tenancy under the Landlord and Tenant Act 1954.

Now whether or not, a landlord chooses to take such drastic action will largely depend on the practicality of doing so, the value of outstanding rent involved and the reputation of the landlord/tenant.

In addition, the moratorium on forfeiture is only temporary and any rents not paid will remain due once the moratorium has been lifted. Accordingly, I would recommend that discussions take place between the parties to reach a mutually viable agreement as to a temporary rent concession or repayment arrangements. Such an agreement should be documented after taking legal advice to ensure the terms are legally binding. Our commercial property team have been pro-active in this respect and have generated documents to deal with such issues meaning that we will be able to assist you on an expedited basis.

Having considered the options available to landlords and tenants, I have outlined below various points that each party can consider in their circumstances.  

Landlords

Other than the more aggressive options detailed above, you could also consider the following:-

1. Rent Deposit – if your tenant has given you a rent deposit, you have the right to simply deduct the underpaid rent from the deposit. Most deposits then require an additional payment into the deposit account by the amount withdrawn which would be enforceable in Court.

2. Set-off/deductions - CV and the 2020 Act are not valid excuses for non-payment of rent (or withholding any other payments due under the lease) and your tenant must continue to make such payments. Considering the current situation with the lettings market, arguably, having a tenant in situ in the aftermath, would be better than an empty property infested by squatters. Hence, it may be in your interests to entertain negotiations with your tenant for:

• Monthly rental payments (as opposed to quarterly payments); or

• A moratorium on rental payments for 3 to 6 months;

• A moratorium on rental payments for a specific period of time which is then recouped over the term of the lease; or

• The rent being reduced by 50% for a certain period to share the burden; or

• A permanent reduction in rent; or

• The rent to be permanently or temporarily converted to a turnover-only basis. 

Before taking any action, you should seek legal advice regarding your options and how any changes should be documented.

3. Insurance – consider your current insurance policies (building, general liability, business interruption, crisis management or mitigation insurance) as to whether losses due to viruses are covered. Please note, most insurance policies do not seem to cover viruses unless explicitly mentioned but it could be possible to try to claim for losses by act of God if that clause or risk is covered under your policy.  In terms of the suspension of rent under the insurance provisions in the lease, while most leases will contain such a clause, it is unusual for this to be linked to anything other than the usual “insured risks” such as damage by fire or flooding. Standard commercial property insurance is usually triggered by physical loss or damage, rather than business interruption caused by pandemics, but you could speak to your insurer to see if this is covered.

4. Complying with the law – tenants usually covenant in their lease to comply with all Acts of Parliament and any delegated laws made under them including byelaws and regulations, hence, your tenant will be responsible for managing the coronavirus situation in the premises (including being responsible for their employees, customers and visitors). In so far as there are any shared areas, you would be responsible for the common parts (depending on the terms of your lease). The costs of the same are normally recoverable under the standard service charge provisions.

Tenants

1. Set-off/deductions - CV and the 2020 Act are not valid excuses for non-payment of rent or withholding any other payments due from you under your lease. You must continue to make such payments if you are able and make enquiries into any reliefs available to you (e.g. the recent announcement of business rates relief).

2. Negotiate - You can consider negotiating with your landlord regarding your rental payments. However, each landlord will react differently to such proposals, but approaching such discussions amicably would, no doubt, assist in maintaining your ongoing relationship.  You can consider asking for:

   • Monthly rental payments (as opposed to quarterly payments); or

   • Monthly rental payments (as opposed to quarterly payments); or

   • A moratorium on rental payments for 3 to 6 months;

   • A moratorium on rental payments for a specific period of time which is then repaid over the term of the lease; or

   • The rent being reduced by 50% for a certain period to share the burden; or

   • A permanent reduction in rent; or

   • The rent to be permanently or temporarily converted to a turnover-only basis. 

Before taking any action, you should seek formal legal advice regarding your options and how any changes should be documented:

3. Exercising the break clause – check your lease to see if it has a break/early termination clause and when it is exercisable. A usual condition in a break clause is that you need to be up to date on rent as at the break date. Accordingly, you will need to keep this in mind if you intend to exercise the break or if you have already served notice on your landlord.

4. Underlet/assign – you could consider sub-letting the whole or part of your premises (depending on the terms of your lease) or assign (transfer/sell) your lease. This may be easier said than done in the current climate.

5. Insurance – consider your current insurance policies (general liability, business interruption, crisis management or mitigation insurance) as to whether losses due to viruses are covered. Please note, most insurance policies do not seem to cover viruses unless explicitly mentioned but it could be possible to try to claim for losses by act of God if that clause/risk is covered under your policy.  In terms of the suspension of rent under the insurance provisions in your lease, while most leases will contain a rent suspension clause, it is unusual for this to be linked to anything other than the usual “insured risks” such as damage by fire or flood. Standard commercial property insurance is usually triggered by physical loss or damage, rather than business interruption caused by pandemics, but you could speak to your landlord to see if this is covered.

6. Termination – in the absence of a break clause or any other termination clause in your lease, you could consider negotiating for the lease to be surrendered. However, you will be at the mercy of your landlord as it will be at their discretion as to whether or not they agree to this. You could also consider whether your lease has been “frustrated”, however, the chances of being successful in arguing frustration currently are as slim as me coming up with the cure to the virus.

7. Complying with the law – tenants usually covenant in their lease to comply with all Acts of Parliament and any delegated laws made under them including byelaws and regulations, hence, you will be responsible for managing the coronavirus situation in your own premises (including being responsible for your own employees, customers and visitors). In so far as there are any shared areas, your landlord would be responsible for the common parts (depending on the terms of your lease).

The Future (yes friends, I am psychic)

If any good has come out of CV, it has taught us about the importance of planning for every eventuality (including the apocalypse, just saying). So, we may start to see specific lease provisions and obligations relating to viruses, for instance, increased obligations relating to services (e.g. health & safety/hygiene) and an expansion of termination provisions.

Please contact any member of our property team on 01494 521 301 to discuss the options available to you.