Corona Virus (Covid-19) and Commercial Leases
Coronavirus has undoubtedly had an impact on all sectors and businesses causing cashflow issues impacting tenants with commercial leases and, in turn landlords too. This has impacted how they are able to do business. Below I will explain some of the impacts of the Coronavirus Act and the options available to landlords and tenants.
- Rent Concessions – There is no automatic right to a rent concession or rental holidays on commercial leases, however, landlords and tenants may agree rent concessions between themselves. It is generally in the best interest for both parties to communicate between themselves and work together to find an appropriate solution that suits both parties.
- Forfeiture – The Coronavirus legislation prevents landlords from initiating forfeiture proceedings until 30 September 2020, also called the relevant period. This period may be extended by the government. Forfeiture is only suspended for non-payment of rent. Rent includes service charges and insurance rent payable under the commercial lease. Forfeiture proceedings for other reasons are not affected by the Coronavirus Act.
- Other Remedies – Landlords are still able to draw on any Rent Deposit Deed in accordance with its terms. They may also call on a Guarantor both under the lease or an authorised guarantee agreement. Interest on unpaid rent will still accrue and be payable under the terms of the Lease.
- Lease Renewals – Under the Coronavirus legislation, landlords cannot rely on non-payment of rent during the ‘relevant period’ to oppose a lease renewal under the Landlord and Tenant Act 1954.
- Break Rights – The conditions on break rights in commercial leases remain. Therefore, for example, rent arrears could impact the right to exercise the break right.
- Landlord’s loss of rent insurance – These policies generally only protect the landlord’s rental income where there has been physical damage. It is unlikely that this insurance covers a situation where a tenant stops paying rent due to Coronavirus. It is recommended that the landlord’s insurance policy is checked for reference to ‘pandemic or epidemic’ as an insured risk.
- Tenant’s business interruption insurance – Tenants should speak to their insurers but, again, business interruption insurance would normally only apply where there has been physical damage to a property.
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