The impact of Covid-19 on landlord and tenant arrangements in commercial leases

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Article

09 November, 2020

Introduction

The economic implications of Covid-19 have presented an array of financial difficulties for both landlord and tenants in commercial leases. With tenants struggling to fulfil their rent obligations under their lease, there are important considerations that both parties should have in mind.

Q: Do tenants still have to pay rent on their business premises when they are unable to run their business due to the current tier restrictions?

A: Unless agreed to the contrary with the landlord, the rent is still due under the terms of the lease. It is important to remember that the inability to pay rent presents possible cashflow problems for the landlord, so they may be open to negotiating alternative arrangements. One such arrangement would be re-negotiating the terms of the lease to pay the rent on a turnover basis. This would mean that the amount of rent payable is determined by the financial performance of the tenant's business.

Q: Can a landlord evict a tenant who is unable to fulfil their rent payment?

A: Under ordinary circumstances, a landlord would have the authority to forfeit a lease because of a non-payment of rent. Current legislation enacted by the Government, however, prohibits landlords from exercising this right before 31 December 2020 at the earliest (it is possible that this may be extended further by the Government). It is important to remember that the outstanding rent accrued in this period is still due to the landlord, and they will be able to forfeit the lease once the exemption period expires.

Q: Can a tenant terminate their lease on the basis that is has been 'frustrated' due to Covid-19?

A: Frustration of a lease occurs when a supervening event means that parties under the lease are unable to perform their obligations, and thus the lease is automatically terminated. As there is a high threshold to meet the requirements for frustration, it is unlikely that temporary restrictions imposed on some premises will allow the tenant to argue the lease has been frustrated.

Q: Can a landlord issue court proceedings against the tenant for rent recovery?

A: It may be the case that the tenant is not willing to negotiate arrangements in an amicable way, and so seeking a court judgment may appear as an effective option to recover rent arrears. However, it is worth noting that this may be a time consuming and costly procedure, and even after a obtaining a court judgement to recover rent arrears, there is no guarantee that the tenant is financially able to pay up.

For more information contact Richard Clithero in our Manufacturing & Engineering department via email or phone on 0333 207 1159. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

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