Covid-19 and business tenancies: Landlord FAQs

    Covid-19 and business tenancies: Landlord FAQs

    Below is a list of frequently asked questions for landlords regarding business tenancies during the Covid-19 outbreak.

    I want to continue agreeing to sell, let or acquire commercial properties but what if there is another lockdown, what would happen then?

    To deal with this eventuality we have drafted clauses which would enable parties to commit to new deals and exchange contracts but be able to require a reasonable delay in circumstances that arise relating to Covid-19. Therefore, if you found yourself unable to progress, for example, because of:

    • illness or quarantine of surveyors, contractors or employees
    • restrictions on travel
    • inability to carry out works to the property or fit out or trade from a property
     

    then this would enable either party to call a halt to the timings in the contract and then restart the clock when the reason for the Covid-19 delay had passed. It specifically requires all parties to act in good faith but acknowledges that, as we are in unchartered territory, we need to have a way to keep things moving but not leave either party unfairly prejudiced by external circumstances they cannot control.

    My commercial tenant is unable to pay rent which means that I cannot meet the payments due under my loan facility.

    Whilst there is no suggestion that commercial lenders are providing payment holidays as for residential mortgages, we suggest that you approach your loan provider to ascertain whether anything can be agreed to assist with the situation.

    As a commercial landlord, do I have to agree to my tenant’s request for a rent reduction?

    Not unless there is a specific provision in the lease to this effect, which would be unusual. However, it may be in your best interests to do so as agreeing to a rent suspension or rent reduction may prevent the premises becoming unoccupied. You will need to ensure that it is made clear how long the rent suspension or rent reduction will apply and we recommend this is evidenced in writing.

    Am I able to terminate the lease if my commercial tenant has stopped paying rent?

    There are various ways a landlord could seek to terminate a lease and the government is seeking ways to protect tenants from these various means.

    The Government has introduced measures preventing landlords from evicting commercial tenants on the ground of non-payment of rent. This currently applies for the period from 26 March 2020 until 30 June 2020, however this period may be extended.

    This only defers rent; it does not provide a tenant with a rent holiday. A failure to pay rent is still a breach of the terms of the lease and any tenant who is not up to date with their rental payments at the end of this period faces the immediate risk of their landlord forfeiting (terminating) the lease.

    The Government has also announced plans to temporarily ban the use of statutory demands made between 1 March 2020 and 30 June 2020 and winding up petitions presented between 27 April 2020 and 30 June 2020. If a winding up petition claims that a company cannot pay its debts, the court must review the petition and, if it is decided that the company cannot pay its debts as a result of Covid-19, the petition will not be permitted and neither will a winding up order be made.

    It is unclear whether the measures will only apply to arrears of rent or will apply to other payment obligations. These provisions are not yet on the statute books but are still awaiting passage through parliament.

    Further, the Government has also amended the existing Commercial Rent Arrears Recovery (CRAR) rules. As a result, a landlord cannot use the CRAR procedure unless the landlord is owed 90 days or more of unpaid rent. This changes the current position where landlords can exercise the CRAR rules when they are owed 7 days of unpaid rent. This applies between 1 March and 30 June with a possibility of extension.

    Please note that these new measures only apply to forfeiture for non-payment of rent, therefore, landlords still have remedies available to them in respect of any other breaches of the tenant covenants contained within the lease.

    Where forfeiture proceedings for non-payment of rent are already underway, the court cannot make an order for possession that expires before 30 June 2020 (unless subsequently extended). Furthermore, failure to pay the rent during this period is not to be relied upon by landlords when opposing the grant of a new tenancy.

    Following the easing of the lockdown restrictions, what should I consider before reopening buildings?

    As the lockdown restrictions are being eased, landlords and those responsible for common parts of a building should take reasonable steps to ensure that those working in buildings or visiting them are not exposed to any health risks. Therefore, in opening up or managing buildings, landlords should consider the management of the common areas and shared facilities, including the provision of cleaning stations and enhanced cleaning.

    Landlords should speak to tenants before they return to the building to consider the practicalities of complying with social distancing guidelines, including staggering start times. Landlords should also check any employment obligations and insurance requirements to ensure all obligations are met.

    A landlord should review any leases to see if any increased cost incurred by a landlord by following more extensive cleaning regimes can be passed onto tenants through the service charge.

    Can I let my property?

    Provided all parties follow social distancing measures, tenants, landlords and agents are now free to visit properties for viewings, moving in and cleaning the property after check-out. It is recommended that all physical viewings should be arranged by appointment.

    Before tenants move in, the property should be thoroughly cleaned to ensure the risk of contamination to the new tenants is minimized.

    How can we help?

    Our Commercial Property Team is here for you and your business. Contact us and we’ll make sure the right legal advisor gets back to you.

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    DISCLAIMER

    This information is given to the best of our knowledge and does not constitute individual legal advice upon which you can rely. The situation relating to Covid-19 is constantly evolving and may have changed since this document was produced. For up to date advice on your own situation, please contact us before taking any action.

    Last updated 21 May 2020

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