The Impact of Coronavirus on Commercial Properties – What you need to know as a Landlord
There is no doubt that the impact of Covid 19 (otherwise known as the Coronavirus) is going to have a significant impact of unknown proportions across the full gambit of the property market. The government’s decision to close all retail and leisure outlets ‘until further notice’ has left the industry reeling with a huge degree of uncertainty, and both Landlords and Tenants are trying to understand where this leaves them.
The purpose of this advice is to try and set out answers to some of the most commonly answered questions across the commercial property spectrum, taking the wording from the Coronavirus Act 2020. Please note that the content below is subject to change upon further advices from the Government.
Will my premises be covered by the Coronavirus Act?
In terms of commercial premises the important thing to note is the definition of ‘relevant business tenancy’ is one to which Part 2 of the Landlord and Tenant Act 1954 applies. Whilst this clearly means that licences or commercial premises which form part of a larger residential lease will not be covered, what is not clear is whether this applies to tenancies contracted out of the Landlord and Tenant Act 1954. We would anticipate that contracted out tenancies would be included in the definition of ‘relevant business tenancy’ on the basis that Part 2 applies to those tenancies in the first instance prior to the contracting out process taking place, however we await further clarification.
I am a Landlord and my Tenant hasn’t paid the March quarter rent – I thought they had to pay?
Notwithstanding the government advice to close premises, the obligation to pay rent continues under a lease and if a Tenant fails to do so then the Landlord is normally able to forfeit (or terminate) the lease for breach of the obligation to pay rent if they so wish. However, the government has announced that there will now be a 3 month moratorium on any forfeiture actions, with the Coronavirus Act stating that a right of forfeiture “under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period” (the relevant period here meaning the period from 25th March until 30th June 2020).
Even though the threat of forfeiture is no longer immediately available, our advice would be to try and speak with the Tenant and agree a formal rent deferment, with the terms of such agreement clearly set out in writing. For example, the agreement would confirm if the Landlord expects the amount to be repaid (with or without interest) and over what period. Without a written agreement in place the terms of any rent deferment are open to interpretation. So your tenant could argue that it was agreed there was no obligation on them to repay the deferred rent, so a written agreement is key here.
What if I have already commenced forfeiture proceedings against my Tenant?
If forfeiture proceedings have already commenced then the courts won’t be able to order possession until the 30th June 2020, even if the reason for the action related to rents due before the Covid 19 epidemic. Any orders for possession prior to 30th June 2020 can be postponed by application from the Tenant.
Are there any other ways that I can get my money from the Tenant?
Please note that there is nothing to suggest that a Landlord cannot still choose to exercise their rights under the Commercial Rent Arrears recovery regime (CRAR) or issue a statutory demand for payment. But in practical terms many premises will be ‘locked up’ and the courts service will be on a much reduced timetable so there is little to be gained from taking this action at the moment. You may also still be able to forfeit for other sums due under the lease such as insurance or service charge payments if these are not being paid.
I am in the process of making a dilapidations claim against my Tenant but I cannot get access to the Property because of the lockdown – what is the position?
If you are in the position where you need to commence, or are in the process of making a Landlord’s dilapidations claim then there are a few key points which you need to bear in mind. Whilst there is no prescribed period for a schedule of dilapidations after the expiry of a lease (other than the one imposed by the Limitation Act 1980) the purpose of a schedule of dilapidations on expiry is to record the state of repair of the Property as at the termination date. Access to properties may prove difficult for both parties in this scenario but unfortunately it would seem as though absence of appropriate surveyors/dilaps assessors to carry out these assessments will not act as a defence to a contractual obligation to keep the property in repair. There is nothing in the Coronavirus Act which would give any leniency on the procedures to be followed under the usual dilapidations procedure.
We can offer advice on the correct approach depending upon whether the end of the lease has already passed. We would also need to check the wording of your lease to check specific time limits for service of the dilapidations schedule.
My tenant has a protected business Tenancy which is about to renew but they have not paid their rent – does this mean I don’t have to agree to the renewal?
The Coronavirus Act goes further in respect of business tenancy renewal and confirms that a Landlord will not be able to rely on ground 30(1) (b) of the Landlord and Tenant Act 1954 (persistent delay in paying rent) in relation to any rent which has become due under the relevant period. Therefore you cannot use this as a ground to refuse a new lease.
Given the timings around lease renewals we would suggest you seek specialist advice on your options as there may be the option to postpone serving your section 25 renewal notice until after the agreed rent deferment period, but circumstances vary on a case-by-case basis.
Is there any way my Tenant could argue that the lease has come to an end because of Coronavirus?
Some tenants may try to argue that the lease has been ‘frustrated’ and has therefore come to an end. The concept of frustration is where circumstances beyond the control of the parties and outside their contemplation make the contract impossible to perform. Whilst Tenants may feel that the government intervention preventing them from operating their premises may amount to frustration the general view is that this is unlikely to be successful given the very high standard to which this doctrine is held by the courts. The recent case of Canary Wharf Limited v. European Medicines Agency 2019 held that a lease was not frustrated as a result of the Brexit vote. We have no doubt that this will be an area where multiple cases arise as a result of the current situation, but at present we believe the principle of Frustration is unlikely to be applicable.
The only other possible way a Tenant may be able to terminate their lease is if the lease contains a specific ‘force majeure’ clause. A force majeure clause is usually found in contracts but is not usually found in commercial leases. Even if you have a lease which does contain a force majeure clause it would need to be specific enough to encompass the current Covid 19 scenario and, again, we believe this would be highly unlikely. If you would like us to review your lease wording and advise then please do get in touch.
I own a multi-let commercial building and there are various common parts (such as a reception area and stairwells etc). What obligations do I have in respect of managing these areas during the Coronavirus outbreak?
Where you have responsibilities for any shared or common parts of a commercial building then it is your responsibility to ensure compliance with all government regulations in relation to that part. If any of your tenants are continuing to operate on a reduced basis then you will need to undertake a full risk assessment to ensure that social distancing measures are put in place for access to and from the let parts via the shared parts of the building. You should also issue your own policy document which echoes the government’s requirements for self-isolation and instruct any employees of the Tenant should not be allowed into the common parts where the recommendation is that they should be self-isolating.
If you would like help in preparing a rent deferment letter or any other advice in relation to your commercial property then please do not hesitate to contact the Prettys Commercial Property team on 01473 298250 or at CommProp@prettys.co.uk.