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Commercial lease rent payments during the Covid 19 pandemic

Following the March quarter day many Tenants are currently deciding whether they can and/or will continue to pay rent to their Landlords And some have already decided. The government has revealed further protections for businesses, with the introduction of a ban on the eviction of commercial tenants who are unable to pay their rent because of the coronavirus (COVID-19) outbreak.

These proposed provisions are outlined in section 82 of the Coronavirus Act 2020. However, the rent will still remain due unless specifically waived by the Landlord (which of course Landlord’s will need to be careful not to do!)

 

Typical commercial leases contain provisions which enable the Landlord to forfeit (terminate) a lease if rent is unpaid for a set amount of time (usually 21 days) or if the Tenant becomes insolvent, but while the new Coronavirus legislation protects against forfeiture there are other matters to consider.

 

Other possible implications of failing to pay your rent are many and various, including:

 

  1. Default Interest accruing on any unpaid rent;
  2. Any rent deposit (if applicable) being utilised to pay arrears leaving tenants being required to top up deposits
  3. If a lease has a tenant break, depending on drafting, failure to pay rent and any interest which may have accrued, whether demanded or not, could invalidate any break notice when you come to serve it.
  4. The Landlord seeking to enforce payment (outside of the relevant period for coronavirus) through Court action, seizing goods or changing the locks.

 

Both Landlords and Tenants should therefore consider their options for navigating these unusual circumstances. Of course each lease is different and some may contain clauses which are particularly helpful in the current circumstances. For example, a review of your lease could reveal that it contains insured rent cessation provisions.  Rent cessation usually only relates to physical property damage by specified insured risks, and would of course depend upon the drafting of the lease in question.

 

At present the best advice would be to open dialogue and seek to negotiate a commercial solution. Reviewing the lease for provisions referred to above and keeping up to date on the latest government announcements are  also strongly recommended.

 

In addition to the statutory protections tenants may be able to agree alternative rent arrangements with Landlords including switching to monthly payment, payment in arrears and reduced rental. Such relief is obviously dependent upon negotiation, but if agreed Leases can be varied to reflect any new agreements on rent. Landlords may wish to consider granting rent reliefs where the loss of its tenant is potentially more damaging than a rent deferral/loss. Landlords will appreciate that it is not a good time to be marketing office space and may therefore choose to engage in negotiations despite not being obliged to do so.

 

You can also find further information on assistance for business being offered by the government here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-businesses-through-the-coronavirus-business-interruption-loan-scheme.

 

If you require assistance or wish to discuss the contents of this guidance note please do not hesitate to contact our commercial property team:

 

Hedley Adcock – 01543 442 106 – HJA@adcocks.com

Andrew Martin – 01543 442 118 – am@adcocks.com

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