Unprecedented challenges for commercial tenants as a result of Covid-19

Insights - 02/04/2020

Tanuja Sellahewa, a Partner in our Commercial Property department, looks at the effects of Covid-19 on commercial tenants.

We are now facing unprecedented and challenging times as a result of Covid-19. There are serious implications for small independent businesses and particularly tenants of commercial premises. The first point of call is to check your lease.

What options do tenants have?

Does your lease contain a force majeure clause?

A force majeure clause excuses either the tenant and/or landlord from performance of the lease in some way following the occurrence of events outside of a party’s control. Closure due to Covid-19 is likely to be covered. Therefore, the party will not be liable for its failure to perform the obligations, in accordance with the clause. In the current climate this clause could come to the rescue for either party.

Even if there is no force majeure clause, it will likely be difficult for a landlord to enforce a keep open clause, especially if the closure is due to a duty to protect the health of staff and not just to avoid paying rent.

Going forward, a force majeure clause allowing for a lease to be terminated or for the premises to be temporarily closed and for rents to be suspended should be included in all new leases.

Does your lease contain a break date?

A break date allows either party to end the lease early if certain conditions are met. It can be granted for the benefit of either the landlord and/or the tenant. It allows the benefitting parties a way out if they need to end the tenancy early. Of course, exercising a break depends on when the break date(s) or break period is and how long the notice period is for.

Ask your landlord whether you can pay your rent monthly instead of quarterly

It is unlikely that rent will be suspended while businesses are forced to close. This is because under the lease, rent is likely to be suspended where there is a property related damage. Covid-19 is a risk to the tenant’s business rather than the property and therefore will be outside the of the intention of the lease terms.

If you refuse to pay the rents, then landlords have the option to terminate the lease or instruct bailiffs to collect goods of the value of the lease rents. But, is this something a landlord would want to do? If they terminate the lease, landlords could be left with empty properties which will be unable to be let out in the current climate.

In the first instance you should speak to the landlord to discuss any issues you may have regarding payment of rent. Perhaps you can ask your landlord whether they are willing to suspend the rent for a certain period. This might help with cashflow. You could also ask to pay rent monthly rather than quarterly or even a reduction in rent. Some landlords may prefer payment of some rent when compared to payment of no rent at all.

Check the terms of your insurance policy.

If your policy has business interruption insurance cover or general liability insurance, then there is a chance that loses suffered due to viruses are covered. However, it currently appears that Covid-19 is not covered under most insurance policies unless it is specifically mentioned. In any event, it is always best to check the terms to check this.

It is clear that we are facing new challenges as a consequence of the Covid-19 pandemic, but at Morrisons Solicitors LLP, we are committed to helping our clients through these challenging times.

Please note that new measures have also just been introduced in the emergency Coronavirus Bill currently going through parliament that will mean that no business will be forced out of their premises if they miss a payment in the next three months. The government has recognised that many landlords and tenants are making arrangements ahead of the first rent quarter day of 2020 but that more protection is needed for businesses struggling with cashflow and concerned about eviction.

If you have any questions or would like to discuss any of the issues raised in this blog, please feel free to contact Tanuja Sellahewa, a Partner within our Commercial Property team.  Tanuja is contactable by telephone on 01737 854 522 or by email on [email protected]

Other articles from April's newsletter

Disclaimer:

Although correct at the time of publication, the contents of this newsletter/blog are intended for general information purposes only and shall not be deemed to be, or constitute, legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. Please contact us for the latest legal position.