How Does COVID-19 Affect Your Commercial Lease?1st Apr 2020
With the coronavirus impacting businesses across the country, both landlords and tenants have concerns relating to their commercial leases.
We are seeing an increase in enquiries from commercial landlords and tenants about their obligations in the wake of COVID-19.
We address some key questions below and provide guidance on the general position.
Can I bring a commercial lease to an end due to COVID-19?
No. Unless you have a break clause or your lease term has expired and you are holding over, it is unlikely that you will be able to end your lease. You could also check for a “force majeure” clause which deals with unforeseeable circumstances. It is however unlikely such a clause will be included within a lease.
Exercising a break clause
You should check your lease to see if you have a break clause and the specific break date. It is important that you seek legal advice before exercising a break clause as there will be conditions that you will need to comply with before serving a notice on your Landlord.
If your lease term has expired, you may be able to serve notice on your Landlord. The required notice period will depend on the terms of your occupation.
Can my Landlord forfeit the commercial lease?
Fortunately, new protective measures have been introduced by the Government. The Coronavirus Act 2020 came into force on 25 March (the date most quarter days fall in commercial leases for rent).
If you are unable to pay your rent, Landlords are suspended from taking forfeiture action for non-payment of rent (which is defined to include all sums payable under a lease) and you will not be forced out during the next three months, ending on 30 June 2020. This period may yet be extended.
It should be noted this moratorium is only temporary, and any rents not paid will remain due. Crucially, your Landlord has not waived their right of forfeiture for non-payment of rent. Therefore, you should approach your landlord to discuss any financial difficulties, as you cannot withhold rent payments.
Can I request a rent suspension?
Closing your business will result in concerns about cash flow and payment of rent. Whilst most modern leases will have a rent suspension clause, this will be in respect of insured damaged (sometimes uninsured damage) to the property and not in relation to business interruption due to COVID-19. However, it is worth checking your insurance policy to see if you are covered.
Your lease will oblige you to continue to pay your rent in full. Therefore, you should discuss your position with your Landlord and find out if they would be willing to give you a rent concession in the circumstances. This could include a rent holiday, reduction in rent or a change to your payment dates. If your Landlord is willing to offer a concession, we would be able to assist you in preparing a side letter to reflect any such agreement.
As an alternative, you should also check to see whether you provided a rent deposit at the start of your tenancy as the Landlord may be willing to drawdown on rent deposit funds.
Do I still have to provide services to my tenants?
You should check the lease to see if the obligation to provide services contains any exclusions such as matters outside your control. Generally, Tenants must continue to pay a service charge and you will remain liable to provide services if the lease includes service charge provisions. If you can no longer provide services, your Tenant is likely to claim a reduction or suspension in any service charge payments.
What about enhanced cleaning services in the common parts?
If you are responsible for cleaning the common parts of your building, you could be looking at more intensive cleaning and providing hand sanitiser of those common parts. Supplying these extra cleaning services will have cost implications. You will need to review the terms of your lease, and check to see whether you can recover reasonable costs from your Tenant via the service charge provisions. Good estate management could extend to deep cleaning or other protective measures.
Do I have to agree to a rent concession/suspension?
Unless there is something specific in your lease, this would be at your discretion. However, there are commercial reasons why you may want to discuss such requests with your Tenant at this difficult time.
Whether you are a Landlord or a Tenant, it is important that you continue to comply with your obligations under a commercial lease in light of COVID-19.
The above note reflects guidance as of the time of writing. It is important that you check the latest government advice for further updates.
This note provides you with a general guide. Please contact us if you require specific advice in respect of your commercial lease at email@example.com and a member of the team will be able to assist you. For more information on commercial leases and to book a free, no obligation initial consultation, click here.