News & Insights: Commercial

Covid-19 and Commercial Leases

3 April 2020

This is clearly an uncertain time for both tenants and landlords of commercial properties. For tenants, their business may have shut down, they  have no income and yet are faced with the prospect of having to pay rent. Perhaps April’s rent has already been demanded or the quarterly payment on 1st May is fast approaching. Landlords will have their own concerns; perhaps payments to lenders or the provision of additional services in terms of deep cleaning etc. This is not a time for rash actions. Landlords and tenants most recognise their respective concerns and early discussion and possibly negotiation, will hopefully see both come out the other side.

Many tenants may have already asked for rent reductions or deferrals. It is important that they recognise that while this Coronavirus crisis may have had a devastating impact on their business, it is not a reason to abscond from their responsibilities in paying rent altogether. It will very much be a case of negotiation and pragmatism for both sides. Perhaps a rent deferral over the next while in return a tenant’s break clause is removed, changing monthly payments to quarterly or a rent reduction on the basis that the reduced rent is still paid. Any variation to the lease terms should be documented in writing, even where it is written in a more informal matter directly between the parties and without the involvement of solicitors.

Landlords should also be wary of enforcement action or terminating leases in these uncertain times. If would be very difficult to try and enforce a ‘keep open’ covenant where  the business has been ordered to close. In addition, following the Coronavirus Act 2020, there is now a moratorium in place in respect of forfeiture, at least until 30th June, which would prevent a landlord from terminating a lease for non-payment of rent in the present climate. In practical terms, one would wonder whether any landlord would be inclined to do so in any case given the difficulties they would face in finding a replacement tenant in the immediate future.

If you have any concerns regarding commercial leases, please contact our Commercial Property Department.

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