COVID 19 - what does it mean for commercial tenants?

On 23 March 2020, the Government announced a lockdown for the United Kingdom in order to fight the outbreak of coronavirus. This meant that hundreds of thousands of businesses, large and small, were forced to close their doors to both their staff and the public, having a huge impact on their finances. Jenny Colvin, Partner in our Commercial Property team, looks at what this means for tenants in commercial premises in the coming months.

My business is closed – do I have to pay the rent on my business premises?

Your rent is still payable under the terms of your lease, unless you have expressly agreed anything to the contrary with your landlord. If you are struggling financially, you should have a conversation with your landlord sooner rather than later to see what they are prepared to offer you to assist in this difficult time. Bear in mind though that until the impending change in legislation announced in June 2021, they didn’t have to help you; it was at their discretion. Many landlords are also struggling with their own cash flow from their tenants not paying the rent, so any arrangement has to work for you both. If you do agree anything outside of the lease terms though, ensure it is made clear what you are to pay when and when, and follow it up in writing. If the lease is to be formally amended, you may need a deed of variation, which we can assist with.

However, new legislation recently announced by the Government indicates that landlords and tenants will be helped to work together to come to an arrangement with regards to arrears of rent incurred throughout the COVID lockdown periods. This may include the landlord waiving some of the debt or agreeing a long term payment plan. In the absence of an agreement, a private arbitrator will be appointed and the arrangement made binding on the parties.

As soon as the restrictions in your sector are lifted though, you will be expected to pay the rent again. The assistance will separate the COVID-incurred arrears from any incurred before March 2020 or after you are permitted to open again.

Can my landlord kick me out?

In all commercial leases, there will be a clause allowing your landlord to re-enter the property, effectively ending your lease, in the event that you breach the lease terms. Current Government legislation prohibits your landlord exercising this right to forfeit the lease for non-payment of the rent during lockdown and this period has recently been extended to 25 March 2022, therefore you cannot be evicted until 26 March 2022 at the earliest. This is not a rent free period though, but a deferment of your debt. You should budget accordingly and be prepared to have to pay the balance and the ongoing rent as soon as possible, and where you are already in arrears, you should try and come to an arrangement with your landlord as to what you can pay and when as mentioned above. Please note that the landlord can still take action for other breaches of the lease, such as carrying out alterations without consent or not keeping it in repair.

My landlord is threatening to sue me. What can I do?

Forfeiture is not the only remedy available to a commercial landlord; it is just a means of their recovering the property from a non-paying tenant. Your lease is a contract and failing to pay the rent will constitute a breach of contract. The landlord can therefore take legal action against you, which could include suing for their losses, or even making you insolvent if your business is run from a company. For rental arrears, they can also use the CRAR (Commercial Rent Arrears Recovery) method of seizing your goods to the sum of the debt due. However, the Government has extended the existing additional measures to prevent landlords from issuing statutory demands and winding up orders until after 25 March 2022. The latest extensions mean that the minimum number of days’ outstanding rent required for CRAR to be exercised will be 545 days’ rent from March 2020.  This does not prevent the landlord from taking any of these measures should the rent still remain unpaid after the respective restrictions are released. These new measures also do not apply to arrears incurred before March 2020 or after you are permitted to reopen your business.

The landlord can though still take court action to recover the debt due from you. Depending on the level of arrears, this could end up with you also paying the landlord’s costs too. We anticipate there to be a large rise in debt claims following the latest announcement, however, there will likely also be a huge backlog of cases for the courts to get through, meaning many are unlikely to be heard much before the end of the year. The new legislation is encouraging landlords and tenants to work together though to find a resolution that is mutually beneficial rather than encouraging litigation.

What if I still can’t pay the rent when lockdown is lifted?

Whilst legally you are still obliged to pay everything to your landlord that is owed from before, during and after lockdown, communication is the most effective means of resolution. Your landlord may be willing (and indeed under the new legislation, will be required) to discuss a payment plan which could end up with a deferment or even a full waiver of the rent. It is though subject to agreement, but as mentioned above, an arbitrator can be appointed if you cannot agree and they will make a binding plan for you both. Make sure that any other arrangement for a reduced or deferred rent is documented in writing as evidence of what you have agreed. We can assist with this if need be.

If you are having to make a difficult decision to move out or close your business completely, there may be other means of getting out of your lease obligations via the use of a break clause (if any), assigning the lease or agreeing a surrender.

Our offices are not currently open for face to face appointments, however we are working remotely and are able to answer your concerns.  If you are a tenant worried about your commercial lease, you contact Jenny Colvin by calling 023 9277 6558 or emailing jennycolvin@warnergoodman.co.uk. 

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.