Covid-19 and business tenancies: Tenant FAQs
Below is a list of frequently asked questions for tenants regarding business tenancies during the Covid-19 outbreak.
Can I just stop paying rent if I am forced to close my commercial premises due to Covid-19?
No, not unless your lease contains a specific provision allowing a suspension of rent due to these circumstances (very unlikely) or a ‘force majeure’ clause (unforeseeable circumstances that prevent someone from fulfilling a contract) terminating or suspending obligations arising from a certain unforeseen event (unlikely in modern leases).
Can my landlord terminate my commercial lease if I do stop paying rent?
No, as the Coronavirus Act 2020 is now in force preventing your landlord from terminating (forfeiting) your business tenancy and evicting you for non-payment of rent because of Covid-19, which will continue until 30 June 2020 (subject to extensions). This could also include, for example, service charge and insurance rent. Remember that this just prevents your landlord from taking forfeiture action against you. You cannot be forced out of your premises if you miss a payment up until 30 June due to the pandemic.
Please note, this is NOT a rental holiday. All commercial tenants will still be liable for their rent, they are just protected from eviction if they are unable to pay rent during this period.
What other action could my landlord take against me?
The Coronavirus Act 2020 does not place other restrictions on potential action your landlord could take against you, so the usual remedies are available. We recommend an early approach to your landlord to try to negotiate a compromise on rental payments. This compromise could take the form of a rent suspension for a certain period or monthly rather than quarterly rent payments to assist with your cash flow.
In the current market most landlords will, most likely, be open to a conversation to protect their medium to longer term income by helping their tenants stay solvent. It should be remembered that landlords may struggle to re-let their premises, could be liable for business rates (assuming no announcement for rates relief) or be responsible for the costs incurred in securing their premises in the event they lose their tenant.
Can I stop paying business rates?
Yes, but only if you are a tenant in the retail, hospitality, leisure, nursery, estate/letting agency and bingo hall businesses in England occupying a property with a rateable value of less than £51,000. We recommend you check your position with the local authority or with your accountant to ensure you can benefit from this relief. Currently this is for a period of 12 months from 1 April 2020.
Tenants in the service sector will not receive this relief unless further announcements are made by the Government.
The Government has announced that a revaluation of business rates will no longer take place in 2021 to help reduce uncertainty for businesses affected by the impact of Covid-19.
What other assistance is available to me as a business tenant?
The HMRC’s website details relief measures such as:
- deferring VAT and Self-Assessment payments
- a Self-employment Income Support Scheme
- a Statutory Sick Pay relief package for small and medium sized businesses (SMEs)
- a 12-month business rates holiday for all retail, hospitality, leisure and nursery businesses in England (referred to above)
- small business grant funding of £10,000 for all business in receipt of small business rate relief or rural rate relief
- grant funding of £25,000 for retail, hospitality and leisure businesses with property with a rateable value between £15,000 and £51,000
- the Coronavirus Business Interruption Loan Scheme offering loans of up to £5 million for SMEs through the British Business Bank
- a new lending facility from the Bank of England to help support liquidity among larger firms
- the HMRC Time To Pay Scheme
My landlord has closed the property I operate my business from – what action can I take?
You could have an action against your landlord for ‘derogation from grant’ (a landlord cannot grant a lease and then prevent you from using the premises for the purpose they were let). Your landlord could perhaps successfully defend such a claim due to these unprecedented circumstances without derogating from grant. In any event, you should be conscious of the fact that litigation is generally an expensive and lengthy exercise.
You could contact your business insurer to consider whether any business interruption insurance you may have, might allow you to recover any losses you suffer due to your premises being closed by your landlord.
Having said that, the current advice from the Association of British Insurers is that “standard business insurance policies are designed and priced to cover standard risks and are therefore very unlikely to provide cover for the effects of global pandemics like Covid-19… Businesses may have chosen to purchase cover that will specifically provide for business interruption arising from notifiable or infectious diseases. However, this type of extension is not commonly included as standard”.
What do I need to do if my commercial premises are now vacant?
You should check your lease to see if you are required to formally notify the landlord that the premises are now vacant. Some leases also have provisions relating to security or caretaking obligations in the event the premises are unoccupied for a specified number of days. Also, you should check your buildings insurance policy to see what notifications the insurers may require and what steps you must take to ensure the policy is not invalidated. If you fail to comply with the terms of your insurance policy, you may be in breach of the terms of your lease.
It may be possible to claim empty rates relief from business rates and you could make enquires with your local authority as to whether this is available. Some leases contain provisions requiring the tenant to financially compensate the landlord if the landlord loses empty ratings relief when the tenant vacates as a result of a claim by the tenant during the lease term.
If a similar epidemic or pandemic arose in the future, is there anything I can do to suspend the annual rent?
If you are about to enter into a new lease, we can seek to insert a clause into the lease which suspends the payment of annual rent should the government implement mandatory measures to prevent or delay the spread of a disease that either prevents the use of the premises for the permitted use or requires the landlord to prevent or restrict access to the premises.
We can try to make this a full rental holiday rather than a deferred payment but whether we will be successful is likely to depend on the relevant bargaining strength of the parties.
When will I have to pay the additional suspended or discounted rent?
If a discounted or suspended rent has been agreed during the lockdown period, as you start to return to your premises and conduct business, you may be facing a return to payment of the full annual rent together with the balance of the rent which has been discounted or suspended. In these circumstances, it is recommended that you should actively engage with your landlord to agree an alternative payment plan. Any agreement between the parties should be documented carefully so that it is in place before your landlord seeks to invoke forfeiture proceedings.
Please be aware that there is no automatic rent holiday due to Coronavirus, there is only a delay in your landlord currently being able to enforce payment of it. You will only obtain a rent holiday if you can negotiate this with your landlord.
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.
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