Gaining Advantage Together

0330 0947777

Landlord and Tenant

The COVID-19 pandemic is causing profound changes to the way we use commercial premises across the country. The retail, leisure and tourism industries are generating most of the headlines, but there are significant considerations for landlords and tenants in every part of the market.

Many of the issues relate to the provisions in a lease. These will dictate the extent to which premises can be closed; for example, many retail and leisure leases, particularly in shopping centres, contain an absolute obligation on the tenant to remain open at all times. What’s critical in times like these are for landlords and tenants to communicate as soon as possible to agree what can be done to the benefit of both parties.

Here are five things to consider:

  1. For businesses in the retail, leisure and hospitality sectors, are you taking advantage of the business rates relief measures set out by the Chancellor?
  2. If you are a landlord or tenant and want to temporarily close premises, both parties need to consider the terms and the rights granted and reserved in the lease. How can these be balanced against Government guidance?
  3. If you are seeking a rent suspension, most commercial leases only grant suspensions in the event of property damage or destruction due to an insured risk. In the majority of cases COVID-19 is unlikely to be treated as an insured risk.
  4. Check to see if your lease has a break clause or imminent expiry date. It is unlikely that a lease can be terminated because of COVID-19. If not, it’s likely that the lease and obligations to both the landlord and tenant will continue.
  5. Landlords responsible for cleaning and maintaining common parts should be providing a more frequent level of cleaning service. It is important they work with their managing agents and facilities providers to check they are complying with Government guidance.

Frequently Asked Questions

What happens if a tenant can’t pay their rent?

We are encouraging landlords and tenants to work together in the current cirumstances. These are some solutions that they can explore:

  1. Paying rent in arrears rather than advance. With most leases annual rent is paid quarterly in advance. 
  2. If the landlord holds a rent deposit, consider deducting the rent from the deposit held, which will ease cashflow. The landlord an tenant will need to decide whether the deposit is topped up at a later date.  
  3. Paying rent monthly rather than quarterly. Although this can be an administrative nightmare for a landlord, it would certainly help a tenant with cashflow and (hopefully) would also prevent a tenant from acrruing arrears.
  4. Reducing the rent on a temporary basis, either until further notice or for a defined number of payment periods.
  5. Defering the rent for a certain period of time, though the rent will still be payable by the tenant.
  6. Agreeing a rent free period, where rent is not paid at all for that period.

Under most commercial leases, rent is paid on regular quarter days; 25 March; 24 June; 29 December; and 25 December. The COVID-19 pandemic caused confusion and panic for landlords and tenants because it hit the UK just before the March installment was due. 

Although landlords are not obliged to agree to any of the suggestions above, but it is vital that they work collaboratively with tenants to find compromises that work, as well as they can, for everyone.

Can a tenant be evicted for not paying rent?

A commercial tenant cannot be evicted for not paying rent until after 30 June 2020.

This is because the government has introduced the Coronavirus Act, in response to the market volatility caused by the COVID-19 pandemic. It means landlords cannot bringing leases to an end using the usual lease provisions – changing the locks when commercial rent remains outstanding for more than 14 or 21 days. 

Until 30 June 2020 commercial landlords cannot start or continue any proceedings to evict tenants. However, there are a number of things both parties should remember:

  1. After 30 June 2020 forfeiture can be effected , which tenants should be particularly aware of if rent for the June quarter is unpaid at this date.
  2. Other remedies for non payment of rent remain available to a landlord, which could include issuing a debt claim in the county court or instructing baliffs to recover rent by taking possession of a tenant’s goods.
  3. The landlord can also serve a statutory demand on the tenant, which threatens winding up proceedings against the tenant if rent is not paid within 21 days. In usual circumstances the threat of a winding up petition is enough to elicit payment. However, if a tenant is actually unable to pay this will have limited effect. Landlords should also be aware that if a solvent company is forced into insolvency, where they may have survived if they had been allowed more time, this will reduce the chances of recovering the debt.
  4. The provisions of the Coronavirus Act also allow the government to grant an extension of the moratorium if it is approriate to do so.

We are urging landlords and tenants to speak to each other early and regularly to try and reach an agreement, for example; repaying any arrears in instalments over a longer period; varying the existing lease to increase the length of the term of the lease; or securing other concessions for the landlord once the initial lock down period has ended.

A lease is up for renewal. Can we delay making a decision about whether we want to renew?

It depends if the lease is a protected one.

For commercial landlords and tenants, if the lease is a protected one, it will continue to roll over on the same terms as the existing one until notice is served. This is helpful because it allows the lease to continue on the same terms during these uncertain times.

If the lease expressly excludes the protection usually offered by Landlord and Tenant Act 1954, then the tenant will occupy the premises as a periodic tenant. Care needs to be taken here that the tenant does not become a protected tenant if they are allowed to occupy as a periodic tenant for more than six months.

Landlords should monitor this situation carefully, particularly in relation to the situation after the end of June.

How do I take advantage of the Government’s business rates holiday package (England only)?

If your business is in the retail, leisure or hospitality sector you don’t need to do anything yourself. Your local rating authority should be in touch with you to re-issue new invoices to reflect the relief.

As the 12-month rates holiday applies from 1 April 2020, all ratepayers who are eligible for the holiday should also be eligible for empty rates relief from the date they vacated until 31 March 2020. You may need to contact your local authority directly to claim empty rates relief.

The relief is available, with no limit to the rateable value or permises, to properties that are wholly or mainly being used as; shops; restaurants; cafes; drinking establishments; cinemas; for assembly and leisure; hotels; guest & boarding premises; self-catering accomodation; estate agents; lettings agencies; bingo halls; and nurseries that closed as a result of Covid-19 measures to restrict the spread of the virus

As a general rule, if the premises are accessible by the general population you should be able to benefit from the relief. 

Do Landlords still need to provide services in respect of multi occupancy buildings during the COVID-19 outbreak?

Almost certainly yes.

Very few leases contain a force majeure clause that could allow a landlord to stop providing services to maintain common areas in multi-occupancy buildings.

In some cases landlords may also be providing additional cleaning services, notably where premises remain open for key workers or essential work. Under most commercial leases, these additional costs can be recovered from tenants providing they have been reasonably incurred.

Tenants must still meet their lease obligations to pay service charges. However, s82 of the Coronavirus Act 2020 means that a landlord cannot currently forfeit a lease if payment of monies is owed under a relevant business tenancy that includes circumstances where tenants have not paid service charges.

In many cases, for landlords it is worth checking the wording of their leases to see if the obligation to provide services contains exclusions in respect of matters outside the landlord's control, or if the obligation imposed means that they need to use reasonable endeavours to provide the services that are subject to payment of service charge.

Where buildings are vacant and it is practical to do so, minimising the services that are provided mitigates the upfront service costs, which will be helpful for landlords who are not recovering rent or service from tenants at this time.