The Coronavirus (Covid-19) outbreak has caused massive disruption to everyday life. At Pinney Talfourd we have seen an increase in the number of enquiries from landlords and tenants in relation to commercial leases.We have compiled below a list of the most common questions we have been asked.
If you have any specific questions or need further legal advice on the points below, please get in touch with our expert Commercial Litigation Team.
Can my tenant end their lease as a result of the Coronavirus?
This is very unlikely. The tenant may try to argue that the lease has been frustrated. However, this is a high threshold to meet and arguable a temporary inability to occupy the premises would not meet this.
Older leases may include reference to a “force majeure” event which gives the tenant the right to end their lease in the occurrence of an event outside the reasonable control of a party and which prevents them from performing their obligations. However, this clause is not standard in modern commercial leases.
If your tenant already has a break clause included within their lease then they are more likely will exercise this option in the current climate.
Can my tenant claim a rent suspension or rent reduction?
In modern commercial leases rent is only suspended or reduced where damage or destruction has occurred to the premises. Inability to access the premises would not trigger this.
However, there are practical reasons, such as avoiding tenant insolvency or reputational damage, as to why you may want to consider requests.
Any rent agreement should be documented in a clear letter with provisions covering scenarios such as where the tenant is able to obtain government assistance.
Can my tenant stop paying rent?
No. However, under the Coronavirus Act 2020, there is a moratorium (until 30th September 2020) on the ability to forfeit a lease for non-payment of rent. This period is subject to review and may be extended. This legislation may influence a tenant’s decision to withhold rent. See below for landlord remedies.
Do I need to agree to requests from my tenant to vary the lease?
Not unless there is specific wording in the lease. However, there are practical reasons, such as avoiding avoid tenant insolvency or reputational damage, as to why you may want to consider requests.
Do I still need to provide services to my tenants?
This will be governed by the wording of the lease and whether there are any modifying phrases e.g. for the landlord to use “reasonable endeavours” to provide services. In such a situation the landlord would not be liable for not providing services where illness, guidance from Public Health England, or staff shortages makes it impossible to do so.
Do I have to provide a deep clean or additional services?
This will be governed by the wording of the lease; it is common for the Landlord to be responsible for keeping the common parts of the premises clean and safe. This would arguably include a deep clean.
However, this cleaning obligation would not normally extend to the demised premises which are leased to the tenants. Furthermore, it may be impractical to deep clean only part of a building. Any services provided also need to follow any relevant health and safety laws ensuring that employees, workers and visitors of a building are not exposed to health risks.
Most leases allow the recovery through the service charge of costs incurred under the catch-all provision of “good estate management”. If a deep clean of the entire building becomes the norm or is recommended by Public Health England it should be possible to recover this cost from the tenant.
Should I close the building?
Closing the building means you could potentially face breach of covenant claims from tenants. If Public Health England advises closure or the Government passes legislation, then you would have a defence to any claims. Anything short of this would leave you potentially liable for the tenant’s losses which result from the closure.
The act of closing the building by itself would not normally suspend or terminate the terms of the lease. This means that tenants are still obligated to pay rent even if the building is closed. Modern commercial leases require that rent is payable without deduction or set off. Any claim the tenant has against the landlord for breach of covenants is separate to the payment of rent.
What happens if the Government forces the closure of the premises?
This would depend upon the legislation however as above, the act of closing the building by itself would not normally suspend or terminate the terms of the lease. Legislation requiring closure would give the tenant a defence to breaching any keep-open clauses in the lease.
Can my tenant turn the premises into a takeaway?
The Government has introduced a new permitted development right for food and drink businesses to allow for the provision of takeaway food where they fall into one of the following categories: (i) Use Class A3 (restaurants and cafes); (ii) Use Class A4 (drinking establishments such as pubs); (iii) a mixed use combining Class A3 and Class A4; or (iv) a use as a drinking establishment with expanded food provision. This new right allows the sale of hot and cold food for consumption off-premises. It applies for a temporary period until 23rd March 2021. The local planning authority must first be notified and at the end of the period, the premises must revert to its previous lawful use. Any pre-existing planning conditions must still be observed which could prevent the above. The terms of the lease remain unchanged by the above and need to be complied with. However, the regulations state that use of the above right does not affect the use class which the property is being used for.
As a landlord do I have the same remedies against my tenant?
As mentioned above, there is a moratorium until 30th September 2020 on commencing new forfeiture proceedings.
In respect of existing forfeiture proceedings, the tenant would not be required to give up possession before 30th September 2020.
In respect of existing proceedings where the possession order has already been made, the Act allows for tenants to apply to vary it to ensure that they do not have to give up possession before 30th September 2020.
To protect landlords, the Act also states that during the moratorium no action by the landlord (other than an express waiver in writing) will be regarded as waiving a right to forfeit the lease in the future.
More information is set out in our article on forfeiture.
Commercial Rent Arrears Recovery
From 24th June 2020, the minimum amount of unpaid rent required before you can exercise CRAR has been increased from 7 day’s rent to 189 day’s rent.
Statutory Demands and Winding-Up Petitions
The Corporate Governance and Insolvency Act 2020 imposes a temporary halt in the use of statutory demands (until 30th September 2020) and winding up petitions (until 30th September 2020) where the company is unable to pay its bills because of the coronavirus.
County Court Proceedings
In light of Government guidance most Courts are de-prioritising what they view as non-essential cases. This means that Court proceedings may still be filed, but are being dealt with much more slowly than usual.
Pinney Talfourd is experienced in these matters and in the current crisis are able to offer landlords a fixed fee assessment of their position specific to their needs for £100 plus VAT. Please contact Stephen Eccles, 01708 463 202 or Oliver-James Topping, 01708 463 227.
The above is meant to be only advice and is correct as of the time of posting. This article was written by Oliver-James Topping, Solicitor in the Property Litigation Team at Pinney Talfourd LLP Solicitors. The contents of this article are for the purposes of general awareness only. They do not purport to constitute legal or professional advice. Specific legal advice should be taken on each individual matter. This article is based on the law as of July 2020.