Legal

The Covid pandemic has had a considerable effect on commercial tenants and their relationship with their landlord.

Rapid Government policy changes and updates may have made it difficult to stay up to date on the support and options available to keep your business healthy. We feature some frequently asked questions that may help you find some clarity.

Can I arrange more time to pay the rent?

Rent remains payable as per the terms of the lease. You should check your lease to see if there is a rent suspension clause. This might suspend the rent in certain circumstances, but usually only where the property has become uninhabitable as a result of an insured risk. You might find the clause is triggered only if the property has been damaged or destroyed, meaning that the coronavirus is unlikely to trigger a rent suspension.

Consider asking your landlord to come to an arrangement for a rent reduction or deferment. Consider:

1. How long will the arrangement last? Will there be any option to renew the arrangement? 2. Will interest be payable? 3. Can your landlord withdraw the arrangement, and in what circumstances? 4. Will it be personal to you and your landlord, or can an assignee of the lease take the benefit?

Any agreement you reach should be formally documented, for example in the form of a side letter, so that you are both clear on your obligations.

Can I terminate my lease?

The Government has not announced any measures allowing for leases to be terminated early by either party as a result of coronavirus. Broadly speaking, you can probably only terminate your lease if the term has expired or is about to; by negotiating an agreed surrender with the landlord; or by exercising a break clause in the lease.

If you do intend to exercise a break clause, check whether there are any conditions you need to comply with before exercising the break. A common condition is that all rents must be paid up to date. If a rent suspension has been agreed, this condition would need to be waived by the landlord before the break could be exercised. You may want to include wording to this effect on any side letter agreeing a rent suspension.

What powers do landlords have?

Currently, your landlord may not enforce a right of forfeiture for non-payment of rent in relation to a business tenancy until after 30 June 2021. That period may be further extended. Landlords could serve a statutory demand seeking payment of rent arrears. If a statutory demand is unpaid after 21 days, your landlord could petition the court to wind up your company.

However, new legislation means that no winding-up petition can be presented in respect of a statutory demand served on a company between 1 March 2020 and 30 June 2021.

Regardless of when a statutory demand was served, no winding up petition can be presented until after 31 June 2021, unless the creditor has reasonable grounds to believe coronavirus has not had a financial effect on your company, or you would not have been able to pay your debts in any event.

Landlords are still able to bring money claims through the courts. As a tenant, you do need to be mindful that arrears are still accruing even if landlords’ enforcement options are currently restricted: as it stands, once the restrictions are lifted, landlords will still be able to recover arrears with interest.

Landlords could serve a statutory demand seeking payment of rent arrears. If a statutory demand is unpaid after 21 days, your landlord could petition the court to wind up your company. However, new legislation means that no winding-up petition can be presented in respect of a statutory demand served on a company between 1 March 2020 and 30 June 2021.

How will the virus affect lease renewals?

Under the Landlord and Tenant Act 1954, the valuation date for determining the rent payable under a new lease is, broadly speaking, the date of the hearing.

Interim rent is payable from the earliest date that could have been specified in the landlord’s section 25 notice or the tenant’s section 26 request. Interim rent is usually set at the same level as that payable under the new lease, though there are exceptions where market conditions change significantly in the time between the old lease and the new one.

Many tenants served section 26 notices to try to get the benefit of lower rents as the market fell following the first lockdown. While social distancing rules are now gradually relaxing, the market remains volatile and specialist valuation advice should be sought from a surveyor.

What should I do if I don’t think I can keep trading?

Ultimately, landlords do not want empty properties. In a difficult market, landlords may be more willing to negotiate terms in order to avoid having their properties sit empty for long periods, costing them money. Constructive dialogue between you and your landlord is the best opportunity for you both to weather the storm.

The Government has announced it will be reviewing commercial landlord and tenant legislation in this year. It has hinted that it may introduce legislation to protect tenants where they are unable to negotiate arrangements with their landlords. It remains to be seen what that might mean in practice.

Ed Cracknell Guy Evans