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Covid-19; Advice for Commercial Landlords
As a result of Section 82 of the Coronavirus Act, UK commercial tenants who miss rent payments due to the impact of the Coronavirus pandemic are to be protected from eviction for at least three months.
Some of the potential issues for landlords of commercial properties are set out below, but specific legal advice should be sought before any action is taken.
Can my tenant claim a reduction in rent if they are unable to use the premises?
Probably not, however it does depend upon the specific wording of the Lease. Very few leases contain a 'force majeure' clause which could allow either party to say that the obligations in the lease are suspended because of Covid-19.
In most leases the obligation to pay the rent is only suspended, or the amount of rent reduced, where there has been "damage" to or "destruction" of the premises by an insured risk or, in some cases, an uninsured risk. These provisions are unlikely to be engaged by Covid-19.
As a landlord, you may decide to reduce, defer or suspend the rent for a period to avoid tenant insolvency. Any decisions of this type must be documented very carefully.
Can my tenant close its premises?
Yes, unless the lease contains a 'keep open' clause or clause requiring the premises not to be left empty for a period, which the closure exceeds. However, if the closure is required by law, it is unlikely that any keep open covenant or covenant not to leave the building empty would be enforceable.
You should check whether leases provide for the tenants to notify the landlord if the premises are left empty, as this may affect your insurance. It is a good idea to liaise with tenants where possible about their intentions, so that you can inform the insurers when buildings are empty.
How do I respond if the tenant asks for variations to the lease and rent to reflect coronavirus?
Unless there is a specific provision in the lease, which would be unusual you do not need to agree. However, there may be commercial or reputational reasons why you would want to engage with the tenants in respect of any request, particularly where necessary to avoid tenant insolvency.
Do remedies against the tenant for breach of obligations remain unchanged?
In the whole yes, except for the three-month moratorium on landlords' ability to forfeit leases of commercial property for non-payment of rent.
The relevant provisions of the Coronavirus Act apply to the vast majority of commercial leases. They prevent landlords from taking action to forfeit for non-payment of rents (depending on the definition of rent within the Lease) from 26 March until 30 June 2020. This period may be extended.
This does not suspend the right to rent or other payments, only the landlord's right to forfeit the lease for non-payment until the moratorium ends.
Even while the moratorium applies, landlords retain the other remedies available to them: for example, to charge interest on the arrears at a rate specified in the lease; to bring debt recovery proceedings against tenants; to serve statutory demands on them, or to make use of any guarantor or rent deposit deed that exists.
Can I proceed with court proceedings for forfeiture which began before the 26 March
The Coronavirus Act provides that orders for possession not yet made in existing proceedings must not require the tenant to give possession before 30 June 2020.
Where an order for possession has already been made, the Act allows tenants to apply to vary the order, in which case the court must ensure that the tenant does not have to give possession before 30 June 2020. Depending on the level of Court that made the original order, this application may not be necessary.
How do I preserve my right to forfeit?
The Coronavirus Act protects commercial landlords from inadvertently waiving the right to forfeit for non-payment of rent during the moratorium period. You can therefore continue to demand rent and deal with requests for consent etc. under the lease without waiving the right to forfeit for non-payment of arrears. However care needs to be taken if a Landlord expresses that they are waiving the right to forfeit, this may still be effective.
Consideration also needs to be taken as to your actions after the end of the Moratorium party, to ensure that your right to forfeit is not waived.
However, if you want to forfeit for some other breach of the lease, the usual rules apply and you will need to stop demanding rent or taking any other action consistent with the continuation of the lease.
This article was written by David Bowers, an Associate Solicitor in our Property Litigation team. Should you have any queries relating to any dispute arising from your commercial property, please feel free to contact him at firstname.lastname@example.org or contact us here.