The COVID-19 pandemic has had a dramatic effect on millions of businesses, including landlords and tenants of commercial properties. With so many companies being forced to close their doors over the last year, it is no surprise that some are struggling to pay their rent or do not want to pay for premises they are unable to use. From the landlord’s perspective, rent needs to be paid no matter what, and many landlords have their own businesses and mortgages to cover during this difficult time. Whether you are a tenant of a commercial property or a landlord for business premises, there are some things you should know about the impact the COVID-19 pandemic is having.
How Has COVID-19 Impacted Commercial Property Rents?
Commercial property rentals have been a popular subject for both the government and our solicitors here at Dootsons. Many landlord and tenants have been affected by the pandemic, and the government has stepped in to put some measures in place to protect businesses on both sides. Many commercial tenants are in a challenging position where they cannot afford their rent because of forced closures and reduced profits. On the other hand, landlords are struggling to receive their rent payments from tenants and are subject to new restrictions put in place by the government in the Coronavirus Act 2020.
Can A Tenant Terminate A Commercial Lease Or Withhold Rent?
Many tenants and landlords have been enquiring whether a tenant can refuse to pay their rent, reduce their rent or terminate their lease early. The first thing to consider here is the specific lease in question, as some may have break clauses, turnover rent provisions or force majeure clauses. Most commercial leases will not provide a way for rent to not be paid or reduced, and in these situations, tenants cannot withhold rent for Coronavirus related reasons. If a commercial lease does feature a rent suspension clause, which most do, it is likely only to apply if the property has been damaged or destroyed, so a rent suspension for COVID-19 will not be a viable option.
When there is no option to terminate a lease early, some tenants look at the common law doctrine of frustration. However, to end a lease contract by frustration, the tenant needs to be able to prove some form of illegality or a failure of common purpose, which would leave the lease impossible or radically different from expectations. This doctrine has very small confines, and using this option to relieve a commercial tenancy has a high bar.
Can A Landlord Evict The Tenant And Forfeit The Lease If Rent Is Not Paid?
On 23rd March 2020, the government announced a set of measures to protect the public and economy during COVID-19. One of these measures was that commercial landlords could not forfeit leases or evict tenants for non-payment of rent. These restrictions are currently in place until 30th June 2021 but could be extended further if necessary. Essentially this means that no commercial landlords can evict a tenant for not paying rent during the Coronavirus pandemic. It is important to note that the Coronavirus Act 2020 only applies to rent arrears, and if a tenant is in breach of other areas of the contract, then this can be handled in the usual way. Rent arrears under the Coronavirus Act 2020 include other sums due from the tenant to the landlord, including service charge and insurance rent.
What Options Are Available For Commercial Leases During COVID-19?
Some landlords and tenants with commercial leases are turning to other options in order to handle this unique situation. Some options that are available for both parties are:
- Rent Concessions: A commercial landlord may agree to an adjustment or suspension of rent during the Coronavirus pandemic. Most landlords want to help tenants get through these difficult times and are prepared to negotiate rent concessions that work for both parties.
- Guarantors And Deposits: If a commercial lease has a guarantor named, then the landlord can still call on them to make the rent payments if the tenant fails to. Landlords can also draw on rental deposits in line with the rental deposit deed.
- Insurance: Both landlords and tenants could have insurance to cover them in this unprecedented situation. A commercial landlord may have loss of rent insurance; however, most policies only provide cover if there has been damage to the property. Tenants may have business interruption service, but once again, most policies only cover for physical damage. Some insurance policies will provide cover, so this is an option worth looking into.
For more information on commercial leases during COVID-19 and to discuss your situation, get in touch with our team today.