The impact of coronavirus on commercial properties – what do you need to know as a landlord?
There is no doubt the impact of the coronavirus on the commercial property market is going to be significant. The government’s decision to close all retail and leisure outlets until further notice leaves both landlords and tenants uncertain where they stand.
So, Rebecca Cleal from the Commercial Property team at Ipswich law firm, Prettys, has looked at the wording of the Coronavirus Act 2020 to answer some of the most common questions. Please note that the content below is subject to change upon further advice from the UK government.
Will my premises be covered by the Coronavirus Act?
In terms of commercial premises, the important thing to note is the definition of ‘relevant business tenancy’ is one to which Part 2 of the Landlord and Tenant Act 1954 applies.
Whilst this clearly means that licences or commercial premises which form part of a larger residential lease will not be covered, it is not clear whether this applies to tenancies contracted out of the Landlord and Tenant Act 1954.
We would anticipate that contracted out tenancies would be included in the definition of ‘relevant business tenancy’ on the basis that Part 2 applies to those tenancies in the first instance prior to the contracting out process taking place, however we await further clarification.
I am a landlord and my tenant hasn’t paid the March quarter rent – I thought they had to pay?
Although the government advice is to close premises, the obligation to pay rent continues under a lease. If a tenant fails to do so, then the landlord is normally able to forfeit or terminate the lease on the basis of that breach, if they so wish.
However, the government has announced that there will now be a 3 month moratorium on any forfeiture actions, with the Coronavirus Act stating that a right of forfeiture “under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period” - the relevant period here means the period from 25th March until 30th June 2020.
Even though the threat of forfeiture is no longer immediately available, our advice would be to try and speak with the tenant and agree a formal rent deferment, with the terms clearly set out in writing.
For example, the agreement should confirm if the landlord expects the amount to be repaid (with or without interest) and over what period. Without a written agreement in place the terms of any rent deferment are open to interpretation. In that case, your tenant could argue that it was agreed there was no obligation on them to repay the deferred rent, so a written agreement is key here.
What if I have already commenced forfeiture proceedings against my tenant?
If forfeiture proceedings have already commenced, then the courts won’t be able to order possession until the 30th June 2020, even if the reason for the action related to rents due before the COVID-19 epidemic. Any orders for possession prior to 30th June 2020 can be postponed by application from the tenant.
Are there any other ways I can get my money from the tenant?
Please note that there is nothing to suggest that a landlord cannot still choose to exercise their rights under the Commercial Rent Arrears Recovery regime (CRAR) or issue a statutory demand for payment.
But in practical terms many premises will be ‘locked up’ and the courts service will be on a much-reduced timetable, so there is little to be gained from taking this action at the moment.
You may also still be able to forfeit for other sums due under the lease, such as insurance or service charge payments, if these are not being paid.
I am in the process of making a dilapidations claim against my tenant but I cannot access the property because of the lockdown – what is the position?
If you are in the position where you need to commence, or are in the process of making a landlord’s dilapidations claim, then there are a few key points you need to bear in mind.
Whilst there is no prescribed period for a schedule of dilapidations after the expiry of a lease (other than the one imposed by the Limitation Act 1980), the purpose of a schedule of dilapidations on expiry is to record the state of repair of the property on the termination date.
Access to properties may prove difficult for both parties in this scenario but, unfortunately, it would seem the absence of appropriate surveyors or dilapidations assessors to carry out an assessment will not act as a defence to a contractual obligation to keep a property in good repair.
There is nothing in the Coronavirus Act which would give any leniency on the procedures to be followed under the usual dilapidations procedure.
We can offer advice on the correct approach depending upon whether the end of the lease has already passed. We would also need to assess the wording of your lease to check specific time limits for service of the dilapidations schedule.
My tenant has a protected business tenancy which is about to renew but they have not paid their rent – does this mean I don’t have to agree to the renewal?
The Coronavirus Act goes further in respect of business tenancy renewal and confirms that a landlord will not be able to rely on ground 30(1) (b) of the Landlord and Tenant Act 1954 (persistent delay in paying rent) in relation to any rent which has become due under the relevant period. Therefore, you cannot use this as grounds to refuse a new lease.
Given the timings around lease renewals, we would suggest you seek specialist advice on your options, as you may be able to postpone serving your section 25 renewal notice until after the agreed rent deferment period. But circumstances vary on a case-by-case basis.
Is there any way my tenant could argue that the lease has come to an end because of Coronavirus?
Some tenants may try to argue that the lease has been ‘frustrated’ and has therefore come to an end. The concept of frustration is where circumstances beyond the control of the parties and outside their contemplation make the contract impossible to perform.
Whilst tenants may feel that the government intervention preventing them from operating their premises may amount to frustration, the general view is that this is unlikely to be successful, given the very high standard to which this doctrine is held by the courts.
The recent case of Canary Wharf Limited v. European Medicines Agency 2019 held that a lease was not frustrated as a result of the Brexit vote. We have no doubt that this will be an area where multiple cases arise as a result of the current situation, but at present we believe the principle of frustration is unlikely to be applicable.
The only other possible way a tenant may be able to terminate their lease is if the lease contains a specific ‘force majeure’ clause. A force majeure clause is usually found in contracts but is not usually found in commercial leases.
Even if you have a lease which does contain a force majeure clause, it would need to be specific enough to encompass the current COVID-19 scenario and, again, we believe this would be highly unlikely. If you would like us to review your lease wording and advise further, then please get in touch.
I own a multi-let commercial building and there are various common areas, such as a reception area and stairwells etc.. What obligations do I have in respect of managing these areas during the Coronavirus outbreak?
Where you have responsibilities for any shared or common areas of a commercial building, then it is your responsibility to comply with all government regulations applying to that part.
If any of your tenants are continuing to operate on a reduced basis, then you will need to do a full risk assessment to ensure that social distancing measures are put in place for access to and from the let parts via the shared parts of the building.
You should also issue your own policy document which echoes the government’s requirements for self-isolation and instruct the tenant their employees should not be allowed into the common parts where the recommendation is that they should be self-isolating.
If you would like help in preparing a rent deferment letter or any other advice in relation to your commercial property then please do not hesitate to contact the Prettys Commercial Property team on 01473 298250 or at CommProp@prettys.co.uk