Commercial leases and Coronavirus

The current crisis is impacting significantly on businesses, with many being forced to close and so experiencing cashflow difficulties. In turn, that may cause difficulty for landlords of such businesses.

The “big message” from the government is that it is hoped parties can speak to each other and agree a way forward which recognises the problems each is facing. However, whilst there are support packages available for many businesses, this is not usually the case for landlords.

In most leases the obligation to pay rent is only suspended, or the amount of rent reduced, if there has been “damage” to or “destruction” of the premises by an insured risk or, in some cases, an uninsured risk. Coronavirus itself does not cause physical damage to or destruction of premises, so these provisions are unlikely to be relevant.

Depending on the actual provisions in the individual lease, it is highly unlikely that the tenant will be able to bring the lease to an end or force the landlord to agree to any variation as to its terms, including rent to be paid. Accordingly, a landlord can insist on the rent and any service charge being paid. Nevertheless, there may be commercial or reputational reasons why a landlord would want to engage with the tenants in respect of any request, particularly where necessary to avoid tenant insolvency. Finding new tenants once the crisis starts to ease may not be easy.

Therefore, a landlord, may decide to defer, reduce or completely suspend the rent for a period to avoid tenant insolvency. Any decisions of this type must be documented very carefully.

However, whilst it is still open to landlords to insist on the other obligations in a lease being met and pursue outstanding rents as a debt, there is a moratorium on landlords’ ability to forfeit leases of commercial property for non-payment of rent for a period which will now expire on 31 March 2021.

For further information contact Stephen Roy on 01394 279636 or email Stephen at stephen.roy@jackamans.co.uk.

This article provides only a general summary and is not intended to be comprehensive.  Special legal advice should be taken in any individual situation.