Under the Coronavirus Bill currently going through Parliament commercial tenants are initially protected from a landlord’s right to forfeit a commercial lease from the date the bill is enacted until 30th June 2020. The bill caters for the right of the Secretary of State to alter the June 2020 date. The bill is currently in draft form but is likely to be passed with little amendment.
Rent default over the next few months
Most commercial leases have provisions for payment in advance on the “usual quarter days”. Accordingly on the face of it tenants who have already paid their March quarter may not benefit from these provisions and in any case commercial leases normally provide for a grace period typically between 14 – 28 days.
Commercial tenants paying on a monthly basis may feel slightly more relaxed for the time being. However the obligation to pay rent means that when the moratorium is lifted the tenant will still be in the firing line for all arrears of rent, depending on your lease your landlord may also be able to charge interest on the late payments together with any legal charges they incur.
Beware also that commercial leases tend to be drafted on the basis that if the tenant is paying insurance contributions or service charges etc. these are also classified as rent.
If the tenant has entered into a rent deposit the landlord may in the alternative draw down against these funds and ask the tenant to replenish as is normal.
Guarantors are not protected from claims and the ability to exercise the commercial rent arrears recovery remedy (CRAR) does not seem to have been considered in this proposed legislation to date. However, we are aware that enforcement proceedings are currently being given a wide birth from the court and it is unlikely if you take such action a court would support you.
Most tenants have probably been in discussions with their landlords to negotiate temporary reductions in rent whilst, effectively, they cannot or should not be using their offices. Taking into account that some alternative remedies still seem available we believe that if you are a tenant and have not so far discussed the situation with your landlord you would be well advised to do so sooner rather than later.
If you are a landlord then the advice may be that receiving some rent rather than none might be better in the short term. Carefully drafted personal side letters could be the way forward if you want/need to keep on good terms with the tenant.
Our experience is that tenants about to enter leases are negotiating extended rent free periods. Each situation is different but the general advice is that if you do not ask you will not get and inflexibility on the part of landlords is likely to be remembered in the future. #WeAreAllInThisTogether
The bill when passed will apply to any court orders for forfeiture for non-payment of rent. No orders for forfeiture will be made during the moratorium. In any case whilst the Courts purport to be up and still running we understand that hearings are being adjourned and only very limited telephone hearings are going ahead. This is correct. Further in any proceedings you could be sanctioned in costs if you do not take heed of the current climate. If you have issued proceedings it would be wise to take advice if you haven’t already.
Rent Reviews and lease extensions
Most landlords seem to be avoiding them for the moment as the market seems quite volatile. Rent reviews are usually linked to market value and whilst if you are a tenant it could be beneficial, if you are a landlord the opposite will be true.
Many landlords seem to be considering lease extensions where appropriate rather than trying to market vacant premises. Again maybe a good time for tenants to agree rent free or concessionary rents.
End of the Moratorium
As indicated above when the moratorium ends the tenant may still have an issue depending on what it has negotiated, if anything, with its landlord. If it is in arrears of rent the landlord still has all its rights preserved and depending on the attitude of the landlord these can still be enforced in the usual manner.
Landlords or tenants we are here to help so if you need some advice we are all remote working and fully functional.Back
Ross Wellman - Partner
To discuss how Glaisyers can assist you contact Ross Wellman on email@example.com or via 0161 832 4666.