Impact of Coronavirus on commercial leases

 

I’m a commercial tenant, can I stop paying the rent during the Coronavirus crisis without consequences?

The short answer is no, the Coronavirus pandemic does not alter the contractual obligations between a commercial landlord and tenant (subject to the published Government requirements e.g. closure of certain businesses). There are hundreds of thousands of businesses, if not millions, struggling financially at the moment but we urge tenants, where relevant, to negotiate with their landlords on potential rent suspensions, alternative payment plans or more preferably reduced rent payments.

What are the Government doing to help?

The Government has taken action to provide some relief for commercial tenants with the introduction of the Coronavirus Act 2020 (CVA 2020). This Act came into force on 26 March 2020 as an emergency measure in response to the spread of COVID-19. It has significant implications for landlords and tenants of commercial and residential premises in that it affects landlords’ ability to recover possession of properties up to 30 June 2020. This period between 26 March 2020 and 30 June 2020, referred to as the “relevant period”, can be extended by the Government if needed. The provisions apply to England and Wales.

Also note, that court proceedings for possession and enforcing an order of possession by a warrant or write of possession, has been suspended for a period of 90 days from 27 March 2020.

This applies to all business tenancies within the meaning of the Landlord and Tenant Act 1954, of not less than six months, whether or not they have opted out of the protections afforded by the 1954 Act, and to any tenancy to which the Act would apply if any relevant occupier (for example a subtenant) were the tenant.

What does it mean in plain English?

For the period between 26 March 2020 and 30 June 2020, your commercial landlord cannot evict you if you do not pay your rent (including any sum a tenant is liable to pay under a business tenancy) during this period. However, in most cases, if you do not pay your rent during this crisis, then at the end of the relevant period you will have to pay not only your ongoing rent but also the rent arrears and possibly interest which accrued during the relevant period. To minimise the impact of this, we suggest that tenants contact their landlords to reach a temporary agreement. Most landlords will be able to take action to forfeit a lease at the end of the relevant period as a landlord’s right to forfeit a lease for non-payment of rent will be preserved during the relevant period, unless the landlord has provided an express waiver in writing.

Of note, commercial landlords may pursue other remedies during the relevant period, for example, pursuing a guarantor, issuing a statutory demand for the rent arrears or issuing court proceedings for the outstanding rent under the lease. If you are a landlord, then we would advise that you obtain legal advice before making a decision on their remedies.

Landlords struggling with cash flow as a result of tenants not paying their rent should speak to their lenders to see if they would allow a mortgage payment holiday during the relevant period.

 

What happens if I can’t pay?

Generally, where a tenant fails to pay the rent due under a lease a landlord may:

1. In some cases, take control of and sell the tenant’s assets on the premises (this relates to commercial premises only).

2. Sue for the rent by court action.

3. Forfeit the lease, either by court action or by peaceable re-entry (most leases will nearly always have an express forfeiture provision). As discussed, this is option is not possible during the relevant period.

If a tenant fails to pay the rent because it is (or may shortly become) insolvent, the landlord's freedom to exercise control over the tenant’s assets, sue or forfeit may be circumscribed by the Insolvency Act 1986.

In the current climate we encourage parties to work together as aggressive action may lead to empty properties and possible reputational damage for the landlord.