Coronavirus and commercial leases: What landlords and tenants need to know
The COVID-19 pandemic has taken the world by storm resulting in the UK Government having to put regulations in place to help people cope with the astronomical impact the pandemic has brought on.
The typical relationship between a landlord and a tenant involves a set agreement whereby a contractual amount of money is paid to the landlord, usually on a monthly basis, and failure to do so can result in the tenant being charged additional amounts or being evicted.
With the loss of work, redundancy and furlough payments being introduced, this dynamic has been compromised. The government have also introduced regulations to protect both landlords and tenants during this time.
With the ever-changing regulations, the question of what happens to commercial premises is proposed. We have explored what the current information is and what this means for both landlords and tenants.
Do contractual obligations regarding rent payments still stand?
The first thing that should be addressed before unpicking this question is a review of the tenancy agreement.
The majority of lease agreements will not include any clauses that allude to the circumstances presented by the pandemic. Still, it is worth looking out for things such as "Break clauses" that give tenants the right to terminate a lease early or "Turn over clauses" that calculates the rent based on the establishment’s turnover. If these clauses are present, there may be grounds for tenants to amend or end lease agreements before the time contracted.
If a tenancy agreement does not include these clauses, the government has introduced regulations that help accommodate both landlords and tenants in these uncertain times. These regulations provided pardons that might not have been part of the initial landlord and tenant agreement.
On the 23rd of March 2020, the government announced that landlords would be banned from eviting commercial tenants who miss rent payments. This announcement was an extension of the Emergency Coronavirus Act 2020.
In a summary of the press release for this regulation, Business secretary Alok Sharma stated, " This measure will provide companies with an essential safeguard in these highly unusual times as they deal with the impact of coronavirus."
While this regulation was originally only supposed to extend until December 2020, it was later extended to the 25th of March 2022.
What does this mean for landlords?
In short, this means that under the Coronavirus Act 2020, landlords are not allowed to evict a tenant for not paying rent until March 2022. This act overrides any original contractual obligations that may have been agreed. However, this act does not preclude landlords from evicting tenants for other contractual breaches.
This act does also not appear to extend to businesses that are not in occupation. Seeking the advice of a legal professional to review the lease agreement could also present further grounds to carry out a lawful eviction dependent on the clauses of the original tenancy agreement.
What does this mean for commercial property tenants?
Depending on the lease and type of business in question, the regulations listed above will mean different things.
For example, many retail, commercial property agreements include a "Keep open" clause that means the tenant is obligated to keep the premise open for trading. With national lockdown restrictions, this clause became void as it was announced that it was illegal for non-essential businesses to be open for trading.
Now that lockdown has been lifted fully, it is likely that this clause will be active again.
Regarding rent payments, up until the 25th of March 2022, if tenants cannot pay rent due to coronavirus related issues, the typical sanctions that would generally apply are void.
However, it is crucial that a legal professional reviews the original lease agreement as tenants can still be evicted for other contract breaches and are liable for other financial responsibilities such as repairs and damages depending on your lease agreement.
Jarmans Solicitors' professional and helpful Commercial Property solicitors provide pragmatic and effective legal advice and guidance.