Agree and Close
Coronavirus Act 2020 – what does it mean for commercial landlords and tenants?
26th March, 2020
Commercial Landlord? Business Tenant? If you are either of these, you are going to be worried about protecting your business income stream, how you are going to pay your rent, and meet your other liabilities in the coming weeks.
The emergency Coronavirus Act received Royal Assent on 25 March 2020. Landlords and tenants have waited with bated breath to see what assistance and relief this will provide.
The Act includes:
A prohibition on repossession for non-payment of rent; BUT
The property has to be used for business purposes; and
The Prohibition due to cease on 30 June 2020;
There is no financial assistance from the Government in relation to commercial rent payments; tenants are still contractually obliged to pay. So what can landlords and tenants do to ease the situation?
Tenants could approach landlords and seek to re-negotiate the terms of the lease, or agree payment plans for the foreseeable future. The new Act is not a licence not to pay – it just “freezes” time on the landlord’s right to forfeit (repossess) for non-payment of rent until 30 June 2020, giving some security that tenants will not be evicted before then.
The Act does not protect tenants for repossession for any other breach of covenant. Lease terms still have to be complied with, so landlords can still repossess if there are other breaches e.g. disrepair. Whether a landlord would actually want to repossess premises for other breaches during the period of lock down is another question. If a landlord does so, it faces being left with no tenant. However, it will still have to pay business rates, utility charges and increased insurance premiums.
Tenants ought to consider whether they are eligible for any new business loans or guarantees, and also check whether business interruption insurance can provide any relief.
Landlords should consider being flexible with tenants whose financial position is genuinely affected by the current climate, who are struggling to pay. Lease variations can be put in place quickly and easily on a short term basis, to help ease cash flow. Provision can be made for increased payments at a later date to compensate. Rent variations can take many forms: e.g. rent holidays, rent reductions, postponement of payments, or other incentives.
Equally not all tenants will have been impacted by the current situation. Be mindful of tenants who may take advantage of the possession embargo – repossession is still available for other breaches, including insolvency.
Do also consider, as landlord, if it may be better to hold off from starting any form of possession proceedings, until demand for property increases when the Country has got back on its feet.
If your tenants have had to close, insurers should be notified of the empty property situation, and any conditions and endorsements strictly complied with. If the portfolio is funded, contact lenders to see what temporary relief they may be prepared to negotiate.
If you would like more information on this subject or if you have any queries, please contact one of our specialist property litigation solicitors who would be delighted to assist you at this time. :
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