Virtually every business in the current climate is struggling to some extent with the impact of the coronavirus and ‘lockdown’
We are hearing from a number of our commercial clients who are either property owners or occupiers, concerned about the on-going payment of rent and what the options are. Under virtually all modern day commercial leases, the Landlord is entitled to forfeit a commercial lease if the rent remains unpaid for a specified period – typically that period is somewhere between 7 to 28 days, but this varies from lease to lease.
The concern recently is driven largely by the fact that the 25 March is typically one of the ‘quarter days’ when rent is due for payment – meaning that forfeiture (based on the 7 to 28 day period as above) would potentially be an option for Landlords roughly from 1 April to 22 April.
It is therefore no coincidence that the Coronavirus Act 2020 (the Act) came into force on the quarter day of the 25 March. Under that Act, the forfeiture of commercial leases is banned until the 30 June 2020 – although the Act does make it clear that this period could be extended if considered necessary to do so.
Whilst it is of course difficult at this stage to give definitive advice as to how the Act will be interpreted by the courts, and how it will work in practice, it is clear that the intention of the Act only relates to the non-payment of rent – if there are other breaches of the lease, then the option of forfeiture is still available to a Landlord.
However, as a practical point, we have seen a number of examples where open dialogue between Landlords and Tenants has resulted in an arrangement being negotiated, such as:
- Utilising a rent deposit held but agreeing not to demand a further payment into the deposit until a later date;
- Agreeing to rent being deferred to a later date (whether in part of in whole) – so it is still payable, but becomes due at a later date; and
- Agreeing to rent being abated (whether in part or in whole) – meaning the rent is no longer payable
In terms of on-going transactions, we have seen examples of clients arranging to complete matters now, subject to having a delayed commencement date under the lease, or potentially a longer rent free period in favour of a tenant
Whilst the government has demonstrated it is willing to offer support, often the best place to start is an open discussion with your landlord or your tenant. Once those terms have been agreed, it is imperative though to make sure they are accurately recorded, typically by way of a side letter.