Coronavirus: advice for UK commercial landlords
As we start the ninth week of lockdown, the UK’s businesses continue to face unprecedented challenges due to the Coronavirus pandemic, none more so than the retail and hospitality sectors.
Regardless of the type of commercial property, or the sector, partnerships between landlords and tenants are being tested.
Many commercial landlords face tenants not complying with their lease obligations and requests for concessions such as rent deferrals or holidays or variations to the lease.
Liz Shaw, director at Wake Smith Solicitors, looks at some potential issues.
What action can I take against my tenant for breach of its lease obligations?
Under the Coronavirus Act, there is a three-month moratorium on the ability of landlords to forfeit leases of commercial property for non-payment of rent. This applies in England, Wales and Northern Ireland. This primarily applies to commercial leases, but excludes most leases with terms of less than six months.
Aside from this, protections from eviction exist for various residential property tenancies, such as assured and assured shorthold tenancies.
Despite the moratorium, landlords have other mechanisms available to them. It is acceptable to charge interest on the arrears at the rate outlined within the lease. Landlords have the right to draw down on rent deposit deeds. Please read the article about the restrictions on CRAR and Statutory Demands (Corporate Insolvency and Governance Bill 2020) for further details.
If I began proceedings for forfeiture before the forfeiture moratorium came into effect, can I still proceed with those court proceedings?
In short, yes, but the Coronavirus Act gives allowance to tenants in England and Wales to vary the order, the result of which is that the court should ensure that the tenant does not have to forfeit possession before 30 June 2020. This date is the earliest date as the Government has power to extend the moratorium.
How can I protect my right to forfeit once the moratorium is terminated?
Landlords in England are protected by The Coronavirus Act from inadvertently waiving the right to forfeit for non-payment of rent or other charges accrued within the period of the moratorium. Continued demand for rent and dealing with requests for consent etc are permissible under the lease without waiving the right to forfeit for non-payment of arrears.
If the requirement is to forfeit for another breach of the lease, the landlord must stop demanding rent or taking further action in line with continuation of the lease.
My tenant has had to close the premises and is asking for a reduction in rent. Do I have to agree to this?
Very few leases contain a 'force majeure' clause, necessary for either party to say that the obligations in the lease are suspended because of COVID-19.
This would also fall under the 'frustration' scenario. The law states that frustration applies where supervening events - unprovided for in the lease, significantly alter the parties' obligations and bring the lease to an end.
COVID-19 does not cause physical damage to or destruction of premises, requirements against which rent reductions can be applied, so it is unlikely to be upheld.
Turnover rents in retail leases may be impacted if premises are forced to close.
Landlords can defer, reduce or suspend the rent to avoid tenant insolvency.
My tenant hasn’t paid the latest instalment of rent and service charge. The lease requires me to provide services, do I still need to do this?
As above, very few leases contain a force majeure clause allowing landlords to suspend obligations to provide any services.
Such obligations may contain exclusions, including matters outside the landlord's control, or if the obligation only requires 'reasonable endeavours' to provide services. In such circumstances, you should not be liable for failure to provide the services.
Do I have to act in good faith if the tenant asks for variations to the lease and rent to reflect coronavirus?
Not unless there is a specific provision in the lease. There may be commercial or reputational reasons to engage with the tenants about this, particularly to avoid tenant insolvency.
Liz added: “As you can see there are many potential issues for landlords of commercial properties as a result of coronavirus. While the above offers some answers, specific legal advice should be sought before any action is taken.”
For further information on property litigation issues during the COVID-19 pandemic contact Liz Shaw at Wake Smith Solicitors on 0114 266 6660.