NB: You can read our previous Legal Brief on the impact of COVID-19 on residential possession claims here.
Coronavirus has put pressure on commercial tenants and landlords alike. Businesses which may have had to close are asking whether they still have to pay rent in light of the pandemic, whilst landlords are wondering what steps they can take to protect their income. This Legal Brief deals with both issues.
Can businesses deliberately withhold payment of rent or terminate a lease?
Businesses may find themselves unable to pay rent, or alternatively, may have all of their staff working from home and no longer require an office space.
The answer to whether you can pay less rent, set off rent, or terminate the lease will ultimately depend on the individual lease. You will need to take specific legal advice on those questions. In particular, commercial tenants should consider and obtain legal advice on any break clauses in the lease.
Generally speaking, most commercial leases will require rent to be paid without any deduction, so it is unlikely you will be able to simply pay less rent without reaching an agreement with the landlord first. It would be a breach of your contractual obligations to do so.
The takeaway is that you should not assume that as a result of COVID-19 you will be discharged from your legal obligations.
Can landlords’ currently forfeit a lease for non-payment of rent?
Usually, this depends on whether the relevant lease includes a forfeiture clause. However, even if that is the case, the position as at the date of this article is that a landlord cannot forfeit a lease for non-payment of rent.
Key points to note are as follows:
- Tenants have a short term protection from eviction due to non-payment of rent. Since 23 March 2020, landlords have been unable to forfeit a commercial lease on the basis of unpaid rent. This “ban” was originally in place until 30 June 2020, but has since been extended until 30 September 2020;
- This short term “ban” applies across the board in respect of forfeiture for unpaid rent. It does not matter if the reason for non-payment of rent is not related to COVID-19;
- Landlords can still forfeit leases for breaches of other covenants, such as repairing covenants, providing their lease allows that; and,
- Failure to collect rent during the period from 25 March 2020 until 30 September 2020 does not amount to a waiver of the right to forfeit a commercial lease on the basis of non-payment.
It is worth both parties taking a commercial view in light of the above. In reality, landlords are less likely to find alternate tenants during this pandemic, as fewer businesses are in the position to take on a new liability. Tenants should also keep in mind that they may want to remain in the relevant building for years to come, when coronavirus has hopefully been and gone. Paying rent obviously helps to maintain a good relationship with your landlord.
Where possible, reaching a suitable compromise that both parties can live with is likely to be the most cost effective and stress free approach during these unprecedented times.
If you have questions concerning a commercial property dispute, and would like our specialist advice, please don’t hesitate to contact our dispute resolution team on 0121 355 0011 or via email@example.com.