REAL ESTATE

Coronavirus And Commercial Leases

The relationship between landlord and tenant has been significantly affected by the ongoing pandemic, not least as the Government has intervened directly to limit a landlord’s rights when faced with non-payment of rent by their tenant.   The recently enacted Coronavirus Act legally curtailed a landlord’s ability to eject tenants who are in breach of their covenants.  The period where such proceedings are prohibited has now been extended until the 31st December 2020, and there is clearly the possibility that further extensions may be made in the future.

Whilst the Act has had the effect of temporarily removing one of a landlord’s traditional remedies, it has not altered the underlying obligations that are created when a lease is entered into.  Rent will continue to fall due in the usual fashion and arrears will accrue if these go unpaid.  Any obligations in respect of insurance, service charge and repairing obligations will also remain binding upon the parties to the lease.

Some landlords and tenants may seek to address these issues despite the new restrictions by agreeing, for example, a deferment of rent or even a surrender of a lease.   Care should be taken when documenting any such arrangements to ensure that the terms are accurately recorded and that any consents required are obtained.  Tenants should also take care that any arrangements do not impact upon any of their existing rights under a lease, such as a break option in their favour.

If rent arrears do develop, and no agreement can be reached with a tenant, a landlord may also consider relying on other protection they may have put in place at the start of the tenancy, such as using a rental deposit or making a demand of a guarantor to the lease. 

Once the current restrictions come to an end it remains to be seen if landlords will be reticent about repossessing commercial premises in an uncertain market.  For example, if a landlord repossesses a premises they will become liable for the rates, and if a new tenant cannot be found it may be useful to leave a lease in place as a shield against this liability.

The use of a statutory demand in respect of unpaid rent as a basis for petitioning to wind up a Tenant is another common route used to pursue corporate tenants for unpaid rent.  This course of action has also been curtailed in response to the pandemic by the Corporate Insolvency and Governance Act.  This provides that no winding up petition may be presented to the Court on foot of a statutory demand served between 1st March 2020 and 31st December 2020, with certain demands outside these dates also restricted.   Despite this restriction, a landlord may also want to consider if obtaining an order against the tenant in respect of any arears would be useful, so that this is in place once normal statutory demands and eviction proceedings can once again be brought.

The provisions of the Corporate Insolvency and Governance Act do not apply to individual tenants or guarantors and a landlord is still be able to issue a statutory demand against them.  However a landlord pursuing such a route will soon be faced with the practical problem of having a winding up petition listed for hearing before the Courts.  These are running at an extremely limited capacity due to the pandemic and may well be faced with a surge of applications once they resume normal business. 

If you require further advice on commercial leases or on any of the matters raised above please contact a member of our experienced commercial property team.

 

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