Tenants and commercial leases – how to deal with Coronavirus (Covid-19)
The coronavirus has impacted all of us. Some businesses are likely to be more impacted than others. Commercial tenants may well find themselves in a tricky situation particularly with the March quarter date upon us and with obligations to pay.
Specialist dispute resolution solicitor, Richard Gore, provides guidance on the legal position for tenants:
A lot of clients have asked about whether the virus amounts to an incident which might trigger a “force majeure” end to the lease. The simple answer is probably not but you need to look at the lease. A lot of modern leases do not have a force majeure clause in them. Some will (and the older the lease the more likely they are to be there) but whether the virus falls under that clause is likely to come down to the wording of the clause where one exists. In some cases, it may well be that the virus is sufficient to trigger an opportunity to get out the lease but these situations will be rare.
This is where some unforeseen event occurs preventing the parties with complying with the lease. Whilst the courts have found that frustration can apply to commercial leases, the bar to overcome is high and you should not expect the virus to be a circumstance which means their lease has been frustrated.
In some leases there may be clauses which provide for the suspension of various obligations in the event of certain situations arising. Each lease and clause will need to be considered to assess whether it might assist you. It is unlikely that these clauses will help as most clauses are intended to deal with damage to the buildings rather than events such as pandemics.
Not paying rent
If you do not pay rent, your landlord may well be able to forfeit the lease (e.g. change the locks on you). However, the government position is that commercial tenants who cannot pay their rent because of the virus will be protected from eviction for 3 months. That does not stop forfeiture for other breaches of the lease but it will give you some breathing space although the rent will still be due.
How long is the lease?
Check the length of the lease – it may be that it is almost at an end and you can serve notice to vacate minimizing any further payments.
Talking with the landlord
Do not underestimate the power of talking to your landlord. Most landlords will be concerned about defaulting tenants and will be just as worried about the current situation as you. It is likely that they will want to ensure that there is some income being generated from their property. Consider these practical steps which you can suggest when talking with your landlord:
- Deferring rental payments for 3 to 6 months (or longer)
- Staggering quarterly payments on monthly basis
- Agreeing a reduced rent for a period of time
- Agreeing to convert the rent to a turnover only rent
During these uncertain times, it is important to manage your expenditure and your risk exposure. Consider your leases and speak with your landlord. Communication is likely to be key to businesses surviving.