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COVID-19 and the impact on commercial landlords

View profile for Jenny Colvin
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There has been much in the news recently about the support available from the Government for businesses in an attempt to save the high street and the economy, but little has been said about the effect on commercial landlords. Jenny Colvin in our Commercial Property team answers some of the most frequently asked questions for you.

My tenant hasn’t paid their rent. What can I do?

From 26 March 2020, the ability to forfeit a commercial lease for non-payment of the rent was suspended by the Government following the passing of the Coronavirus Act 2020. You cannot therefore take the usual steps to evict your tenant at present.  In September, this was extended until 31 December 2020. However, from 1 January 2021, unless the Government guidance changes further, you will be able to forfeit the lease and recover the property from this point. Consider, though, the merits of doing so beforehand as you will potentially be left with an empty unit which could be difficult to fill in the current climate and you may be liable for any empty premises business rates.

Forfeiture is not your only remedy. You can also issue court proceedings for the breach of the lease to recover your losses, or even make the tenant insolvent. For rental payments (rather than service charge or insurance) you can also utilise the CRAR method of seizing goods to the value of the debt owed. The Government has now extended further legislation though to ban landlords issuing statutory demands to wind up a tenant company between 1 March and 31 December 2020 where the tenant is unable to pay its debts due to the impact of Coronavirus. 

The same legislation has recently been further extended so that the non-payment of rent period has increased from 7 days to 189 days before CRAR can be used as a means of recovery of goods to the sum of the tenant’s debt. CRAR can only be used for arrears of rent. This will remain the case until 31 December 2020 at present.

My tenant has asked if they can pay a reduced rent during the shut down. Should I agree?

You can, the advantage being that you would still have some rent coming in. It is very important though that you record any such rent concession agreement in writing with your tenant to avoid it later being used to argue that rent has been varied for the remainder of the term.

My tenant is a big company and I know they can afford to pay. Can I make them?

Unfortunately, the moratorium on forfeiture and other arrears recovery methods are not means tested. It therefore does not matter whether your tenant has the money or not. If they refuse to pay, there is little you can do until after 31 December 2020. Please bear in mind though that this is not a rent free period – the rent is still due for the unpaid period and should be paid by the tenant as soon as possible, otherwise you will be able to consider taking the aforementioned actions against them from 1 January 2021.

My tenant’s arrears have nothing to do with coronavirus. Can I kick them out?

No. The moratorium extends to all business tenancies, with exceptions for tenancies at will, licences to occupy, and short term tenancies of less than 6 months, regardless of whether the arrears are directly attributable to the Coronavirus or not. The courts will consider on a case by case basis any winding up orders presented after 31 December 2020 and will consider at whether the debt is due to Coronavirus or not as part of the process.

The tenant is still paying the rent but they are in breach of other covenants in the lease. Can I do anything about this?

Yes. The Coronavirus Act 2020 only covers rent arrears. Other breaches of covenant, such as carrying out unauthorised alterations or failing to keep the property in repair, may be dealt with in the usual way by serving a s146 notice and requiring the breach to be rectified, and applying for a court order to forfeit the lease if this is not done. This is a complex legal process though, and proper advice should be sought. You can also sue for damages to recover your losses from the breach as mentioned above. The new legislation is not clear yet on whether the restriction on other enforcement measures only apply to rent, or will also apply to service charge and other payments due under the lease. CRAR can only be used for rent arrears in any event.

My tenant says they still can’t pay even once lockdown is lifted. Do I have to help them?

No, you don’t. The tenant has signed a contract and this contract requires them to meet the terms of the lease for the duration of it. The events surrounding Coronavirus do not constitute a frustration of the lease and these extenuating circumstances do not change the contract. However, whilst recovering the property may be possible after 31 December 2020, with peaceful re-entry as an alternative to court proceedings, going to court or taking legal action is likely to be expensive for all involved, and will take some time, due to a backlog and high demand for the courts.

What else are the Government doing?

In addition to the statutory measures outlined above, the Government has published the Code of Practice for commercial property landlords and tenants for use during the COVID-19 pandemic. It has been prepared by industry professionals and is designed to give guidance to both sides on how to deal with commercial property issues in the current climate.

Compliance with the Code is not mandatory and its provisions are not legally enforceable, however, the Code is designed to apply to all commercial leases held by businesses which have been "seriously negatively impacted by the Covid-19 crisis" until 24 June 2021. The Code seeks to encourage parties to be flexible and to keep ongoing communication, seeking resolution where possible without legal action. It is important to note that the Code does still ensure the tenant remains liable for all outgoings and rental payments but advises landlords to support them where possible until they are back on their feet.

If you have any queries about your commercial lease, please contact Jenny Colvin in our Commercial Property team on 023 9277 6558. If you would like to take action against a tenant for breach of the lease, please contact Helen Porter in our Commercial Litigation team on 023 8071 7425.

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.