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Commercial Property Landlord and Tenant Q&A

We are here to support you during these challenging and fast-moving times.

The latest updates from the Government reveal that they are continuing to act in an unprecedented fashion to help businesses through the 2019 novel coronavirus disease (COVID-19) crisis.

The most significant development for the landlord and tenant sector is that tenants of commercial premises will not be evicted from their premises until the end of June 2020 if they are struggling to pay their rent.  These protective measures are included in the emergency Coronavirus Bill and will mean no individual or business will have their lease forfeited and be forced out of their premises if they miss a payment in the next 3 months.

The measures have not been explained in detail as yet and the draft legislation has not yet passed through all the stages of approval at Westminster, which means some questions remain for tenants and landlords trying to navigate their way forward. 

We will continue to monitor and keep you posted on developments.  In the meantime, see our thoughts on some of the big questions landlords and tenants will be grappling with right now.

Does the government announcement equate to a rent-free period?

No.

The Bill does not provide a rent-free period for tenants. It simply provides that a right of forfeiture “under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period”. This amounts to an absolute prohibition on a landlord forfeiting for non-payment of rent, with no clear mechanism for assessing whether the non-payment relates to the COVID-19 crisis or not.

The draft legislation gives any commercial tenant, whether in the retail and leisure sectors or otherwise, and no matter what their financial position, the opportunity to not make any rent payment falling due up to the end of June 2020, without risk of forfeiture. 

Importantly, however, the landlord’s right to forfeit is not waived indefinitely, it is effectively suspended. Therefore, provided the landlord has not given “an express waiver in writing”, a landlord will still be able to forfeit for non-payment of rent that falls due if it is not paid after 30 June 2020.

Will the tenant have to pay the rent back at the end of the 3 month period?

Yes. 

The draft proposals do not suspend a tenant’s obligation to pay rent – they only suspend a landlord’s right to forfeit for a set period.  Further, the draft proposals do not appear to prevent landlords from taking other action against a tenant for non-payment of rent.  This could include serving a statutory demand prior to a bankruptcy or winding up petition, issuing court proceedings for payment. However, such actions are unlikely to be commercially sensible or practical, at least in the short term.  The Bill also does not appear to stop time running for the accrual of late payment interest on any arrears that fall due under the lease.

As such, we strongly recommend that pragmatic and open conversations between landlords and tenants commence now, if they have not already been undertaken.  We have acted for some landlords and tenants who have already agreed commercial terms to deal with the rent due in the period up to the end of June 2020 e.g. what will and will not be paid, when it will be paid, whether interest will accrue and what rights the landlord will forgo in the meantime (including formal rent and interest holidays/abatements). 

Such commercial agreements mean that despite the present unprecedented uncertainty, both parties can make some plans for when things start to normalise again.

What help is available to the Landlord?

Forfeiture (one of a landlord’s most powerful remedies to enforce non-payment of rent) is now off the table until 30 June 2020.  Landlords may find that tenants that were previously eager to agree rent deferral deals will now simply rely upon their statutory rights, or at least take a harder line in such negotiations.  As mentioned above, landlords do still have other contractual actions available to them, but many of the options are presently commercially unviable. 

Landlords should carefully check insurance provisions in their leases as well as their policies to ascertain whether COVID-19 (included under a broader definition such as epidemic or pandemic) is an insured risk which would then permit an insurance claim for loss of rent. If it is covered then the tenant may in theory also be entitled to a cessation of rent – but only if the rent suspension is wide enough to be triggered by the premises becoming inaccessible or unfit for occupation.

For landlords whose borrowings are dependent on rent roll, we recommend they open up conversations with their lenders as soon as possible and ahead of any commercial agreements with tenants, to investigate what options they have themselves for payment holidays, and to ensure any temporary agreements with tenants do not inadvertently put them in breach of their own facility agreement.

The government is monitoring the impact of COVID-19 on landlords – but at the time of writing, specific measures to assist landlords have not been forthcoming.  We will continue to monitor the government announcements to see what help becomes available to landlords in the future.

WE CAN HELP

Having the right legal advice at the right time is crucial. Our expert team offers clear, concise and problem-solving legal advice aimed at navigating landlord and tenant issues.

Please contact our property directors on the details below should you need any advice:

Anne Skeggs

Director, Head of Property

T. 07725 258461
E. anne.skeggs@millsselig.com

 

Anna-Marie McAlinden

Director

T: +44 (0)28 9044 5403
E. anna-marie.mcalinden@millsselig.com

 

30 March 2020

Speak to us on +44 (0)28 9024 3878