COVID-19 & Advice for Commercial Tenants
The effects of the various measures introduced by the government to try to limit the spread of COVID-19 are being felt keenly by businesses up and down the country. Forced closure of business premises and social distancing orders will be dramatically reducing the income of many businesses. A tenant’s obligations under its commercial lease, including the payment of rent will remain unchanged. So what options are there to try to reduce or mitigate this burden?
Questions to be answered in this article
Seeking a rent concession
You could speak to your landlord to ask them to help you mitigate your obligation to pay the rent. You could ask for:
- a waiver of payments for a certain period;
- a reduction in the rent for a certain period;
- a deferral of rent payments until a certain date; or
- a change to monthly rent payments to try to ease cash flow.
Your landlord does not have to agree to any of these requests and it could have its own outgoings which it needs the rental income to satisfy. However, there may be some landlords that can be more flexible and see the sense in trying to help their tenants survive the crisis.
If you can come to an agreement with your landlord, it is important that it is documented properly. It would be best, from your perspective, to vary the lease to reflect the new agreement. If the landlord will not agree to this, a carefully drafted side letter should be drawn up. If you are able to agree a concession with your landlord, please get in touch with us to ensure a properly drafted document is agreed.
You might be able to mitigate some losses or some property costs if you can claim against a commercial insurance policy. If you have any such policies, you should check the terms carefully. It may be that your policy covers government ordered closure and pandemics or government ordered closure and unspecified notifiable disease. If it does, you may be able to make a claim. The government added COVID-19 to the list of notifiable diseases on 5 March 2020. However, most policies restrict the notifiable diseases to the ones which were specified at the date of the policy and if this is the case, it is unlikely you will be able to make a claim under your policy.
Missed rent payments
What happens if you find you are unable to make a payment due under the lease? The government has introduced a moratorium on commercial landlords taking action to terminate a lease for non payment of rent. For more information on this please see our recent update.
Although you will be safe from forfeiture for a period of time if you are unable to pay rent, the landlord’s other remedies for non-payment are unaffected and these include (depending on the terms of your lease):
- taking an amount to cover the missed payment from any rent deposit it might hold;
- pursuing a personal guarantor for the missed payment; or
- petitioning for the bankruptcy or winding up of the tenant.
Exiting the lease early
You may decide the best option for your business is to end your obligations under the lease. If you have a break option which is coming up soon, this may be possible. It is important to take advice on the terms of your break option and what steps you need to take to properly exercise it. The terms of break clauses can vary from lease to lease but most will provide that the break clause cannot be exercised if there are any arrears of rent.
You could ask the landlord if it is willing to agree to you surrendering your lease early. Perhaps if you are close to the end of the term of the lease and if you able to make a payment in lieu of the missed income for the remainder of the term, there may be some landlords would be willing to agree to this. In the current climate, however, it is probably more likely that a request to surrender would be denied by a landlord.
For more information on COVID-19 and Tenant Protection, please click here.