The Coronavirus is putting business tenants under intolerable financial pressure and some are finding themselves suddenly without any sales or income at all. Many business tenants told their landlords that they would not be paying their quarterly rent on 25 March; others have reached agreement to pay monthly, and still others have demanded greater concessions. But how should rural landlords react to this and how strong or weak a position are they in?
Following the Prime Minister’s order for a lockdown, the gov.uk website says this about business leases –
Commercial tenants who cannot pay their rent because of Coronavirus will be protected from eviction, the Government has announced.
Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly but the Government recognises businesses struggling with their cashflow due to Coronavirus remain worried about eviction.
These measures, included in the emergency Coronavirus Bill currently going through Parliament, will mean no business will be forced out of their premises if they miss a payment in the next three months …
As commercial tenants will still be liable for the rent after this period, the Government is also actively monitoring the impact on commercial landlords’ cashflow and continues to be in dialogue with them …
The amendment to the Coronavirus Bill on commercial leases will apply to England, Wales and Northern Ireland [and] to all commercial tenants …
The change will come into force when the Coronavirus Bill receives Royal Assent. It will last until 30 June, with an option for the Government to extend if needed.
The announcement was implemented by section 82 of the Coronavirus Act 2020 on 25 March.
Whilst it is clear that there is now a statutory restriction on landlords forfeiting business leases if rent is not paid, it is important to note that:
Many landlords will have no desire or intention to forfeit a lease. However, the availability of the remedy is a weapon in a landlord’s armoury, when it comes to bargaining power and the terms on which any rent concessions are negotiated.
Forfeiture is only one of the measures to which a landlord could resort, if a tenant does not pay rent; a range of other bargaining levers are still available. Even if there is further Government intervention and they are also suspended, all these remedies should become available again, when the moratorium is over.
A landlord is rarely a tenant’s only creditor. How can a landlord get to the front of the payment queue? Often the creditor who exerts the greatest pressure is the one who gets paid first.
A tenant who says he is never going to pay the rent due from the forfeiture moratorium period may think again if he is faced with the prospect of Commercial Rent Arrears Recovery (CRAR), or any guarantee or rent deposit being called upon, or court, or insolvency action. As matters stand, none of those remedies have been suspended at the time of writing.
But what if the tenant can’t pay, or would actually rather give up the premises? A landlord will need to make a careful assessment of the situation: Is it better to have a tenant with at least a liability to pay rent, or would it be better to get the premises back?
In the present circumstances, many landlords have concluded that it would not be in their own interests to take action against tenants, which might increase the chance of them not getting paid at all.
If an agreement is reached about a rent concession, it is essential to record it in writing. Indeed, many tenancy agreements will require variations to be in writing. A deed of variation is unlikely to be necessary, but many leases will require any form of divergence from existing terms to be agreed in writing and, ideally, in a single letter or other document signed by both parties, or by an exchange of communications confirming the terms.
It is recommended that any agreed concession is strictly time-limited, regardless of the Government moratorium. For example, an agreement to pay on a monthly, rather than quarterly basis, should only be agreed until the end of the moratorium period. Make sure that is documented too. No landlord will want, what it believed to be a temporary concession, being alleged by the tenant to be a permanent concession.
It is possible that as the Coronavirus crisis continues, many tenants will give up and attempt to walk away from premises. Keys are frequently handed back in the mistaken belief by tenants that they can unilaterally terminate their obligations by doing so.
Unless a landlord is sure that he wants the premises back, it should be made clear to any tenant behaving in this way that keys will be held for safe-keeping purposes only, and that the lease has not been surrendered.
Please refer to our article: Coronavirus update – insurance implications of unoccupied premises for more information.
If in doubt about anything, take advice
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores’ Property Litigation team.
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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.