Commercial Property: What you need to know
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.
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Frequently Asked Questions
- Could I be forced into insolvency by my landlord if I’m a tenant who cannot pay my commercial rent?
- Under the current circumstances do landlords still need to ask a tenant’s permission to use the rent bond, and what happens if the tenant refuses to allow? Is it the same for a licence as it is for a lease?
- If a tenant has exercised the break clause in a lease to bring the tenancy to an end but is unable to pay the rent currently and therefore operate the break clause (which is conditional upon the rent being paid), will an informal agreement to pay that rent over the next 12 months (which takes the tenant beyond the break date) invalidate the break notice served and mean the tenant cannot exercise the break right?
- If the tenant has exercised a break clause that is conditional upon the tenant delivering up the premises in good repair and condition, but the tenant will not now be able to access the premises to do the repair works, what is the best way to deal with this?
- Do Landlords still need to provide services in respect of multi occupancy buildings during the COVID-19 outbreak?
- What happens if a tenant can’t pay their rent?
- Can a tenant be evicted for not paying rent?
- A lease is up for renewal. Can we delay making a decision about whether we want to renew?
- How do I take advantage of the Government’s business rates holiday package (England only)?
Recent announcements by the government may mean your business cannot be put into insolvency if you are unable to meet your rent obligations. The Business Secretary, Alok Sharma, set out a new raft of measures on 23 April to protect high street shops and other companies under strain. These businesses will be asked to pay what they can in terms of rent, service charge and insurance due during the COVID-19 crisis, but statutory demand and winding up petitions issued to commercial tenants are to be temporarily voided.
These new measures, which will include a ban on the use of statutory demands made between 1 March 2020 and 30 September 2020 and on winding up petitions presented from 27 April until the end of September, will help ensure tenant companies are not put under greater financial strain.
Under the current circumstances do landlords still need to ask a tenant’s permission to use the rent bond, and what happens if the tenant refuses to allow? Is it the same for a licence as it is for a lease?
It depends on the terms of the rent deposit.
However, if tenants default in relation to the payment of sums, typically the landlord will not need to get the consent of the tenant to deduct sums. There is usually a requirement to notify the tenant that the sums have been deducted within a certain period and usually a requirement for a tenant to top the deposit back up.
If a tenant has exercised the break clause in a lease to bring the tenancy to an end but is unable to pay the rent currently and therefore operate the break clause (which is conditional upon the rent being paid), will an informal agreement to pay that rent over the next 12 months (which takes the tenant beyond the break date) invalidate the break notice served and mean the tenant cannot exercise the break right?
It will depend on the wording of the particular break clause in question.
Assuming that the break clause in the lease makes the break right conditional upon the tenant paying rent on or before the break date, then if the rent remains unpaid at the break date, then the landlord would have the right to frustrate the break right.
The recommended way to deal with this would be for both parties to agree in writing to waive the requirement in the lease to require the outstanding rent to be paid on or before the break date.
If the tenant has exercised a break clause that is conditional upon the tenant delivering up the premises in good repair and condition, but the tenant will not now be able to access the premises to do the repair works, what is the best way to deal with this?
The landlord and tenant could agree to grant the tenant a short tenancy at will to allow them access to carry out the necessary repair works. However, caution needs to be exercised so that the tenant does not inadvertently gain protection under the Landlord and Tenant Act 1954 if the duration of the tenant’s occupation is more than six months.
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.
We are encouraging landlords and tenants to work together in the current cirumstances. These are some solutions that they can explore:
- Paying rent in arrears rather than advance. With most leases annual rent is paid quarterly in advance.
- 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.
- 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.
- Reducing the rent on a temporary basis, either until further notice or for a defined number of payment periods.
- Defering the rent for a certain period of time, though the rent will still be payable by the tenant.
- 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.
A commercial tenant cannot be evicted for not paying rent until after 30 September 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 September 2020 commercial landlords cannot start or continue any proceedings to evict tenants for rent arrears. However, there are a number of things both parties should remember:
- After 30 September 2020 forfeiture can be effected , which tenants should be particularly aware of if rent for the June quarter is unpaid at this date.
- 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 bailiffs to recover rent by taking possession of a tenant’s goods.
- 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.
- The provisions of the Coronavirus Act also allow the government to grant an extension of the moratorium if it is appropriate 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.
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.
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.