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Property Disputes in light of Covid 19: Common Tenant FAQ’s and how we can help

1. Help! My shop hasn’t been open since the lockdown and my landlord is demanding the next quarter’s rent which is overdue.Can he forfeit my lease?

Not at the moment. The Coronavirus Act 2020 imposes a moratorium on a landlord’s ability to enforce his right to forfeit commercial leases up until 30 June 2020. The tenant’s non-payment of rent must be due to the restrictions imposed by the Covid -19 lockdown. The landlord does not lose his right; it is merely on hold. 

2. How about service charges and insurance payments which I owe to the landlord?

The definition of “rent” under the Coronavirus Act 2020 includes any payment due from the tenant under a business tenancy so will include service charge and insurance rent. The landlord cannot forfeit the lease for non-payment of either during the moratorium.

3. Does this mean I can withhold rent altogether until the end of June?

No; although you should check the lease terms as to when you might be able to withhold rent. You should look out for a force majeure clause in the lease to see if you can terminate the lease or delay or suspend rent payments (but there is unlikely to be one as these are very rare). You could also check to see if there is a break clause but you should seek legal advice if choosing to exercise a break as conditions may attach and make the break notice invalid if not fulfilled.

Although a landlord cannot forfeit the lease, rent will continue to accrue (with interest). As things stand, landlords can start proceedings for non-payment of rent after the end of June (for commercial tenancies) or end September (for residential tenancies).

It may be worth you having a rent review / deferral talk earlier with your landlord to reduce the likelihood of a dispute over rent after the lockdown is lifted. If this happens, landlords and tenants should make sure that any agreement is set out in a formal written document, ideally reviewed by a solicitor to ensure the terms are what both parties intend.

4. The rent in my retail lease is defined as “turnover rent”.Does this mean I don’t owe any rent to my landlord while my shop is closed?

“Turnover rent” is rent calculated based on turnover generated by the tenant’s business. The impact of reduced footfall and a reduction in trade will have a direct impact on the amount of rent you need to pay to the landlord.  By contrast, fixed cost rent (with no reference to turnover) does not alter and is due in full regardless of whether your shop is open or closed. You will need to check the lease terms to determine how your rent is calculated.

5. What can the landlord do instead of forfeiting?

At present, there are some protections for commercial tenants introduced recently through emergency legislation:  these are to prevent commercial landlords from aggressively pursuing rent collection.  Landlords cannot commence Commercial Rent Arrear Recovery (CRAR) procedure if the tenant is only 7 days’ in arrears; nor can they serve a statutory demand on the tenant for the rent due.

There is however no absolute ban on the presentation of a winding up petition against a tenant company:  instead these will be reviewed by the court and where a company’s inability to pay is as a result of Covid-19, the petition will be automatically dismissed.  Additional measures are due to be implemented by the Corporate Insolvency and Governance Bill (the wording of which is still to be finalised). The proposed Bill does not appear to apply to an action against a guarantor. 

6. I am a landlord of commercial premises and whilst I am sympathetic to my tenant’s inability to pay rent during the Covid-19 lockdown, I have my own cashflow issues.What can I do?

The government is encouraging landlords to take advantage of its package of support, including its Coronavirus Business Interruption Loans Scheme which has recently been expanded.

There is no legal obligation on you to waive the rent you are owed from the tenant. Landlords are being encouraged to engage in productive discussions with tenants to consider rent deferrals or an early rent review. 

Both parties should check their insurance policies to see if they can offset the risk caused by business interruption or loss of rent due to the pandemic. 

You may also have a rent deposit from the tenant which you can draw down from in the interim to help preserve your cashflow but should agree with the tenant, in writing, when and how those funds are to be replenished.

7. What can I do if I cannot make my mortgage repayments because of the Covid-19 lockdown?

It may be possible for you to negotiate a payment holiday of up to 3 months with your mortgage lender. Interest will still accrue during the period of any mortgage holiday even though your monthly payments are reduced to zero.   

8. I am a residential tenant under an Assured Shorthold tenancy; my landlord has already commenced eviction proceedings against me but I haven’t heard anything further.When will I have to leave?

All residential possession proceedings are currently on hold until 25 June 2020.  This does not include claims against trespassers.

9. As a landlord of commercial premises, do I have to provide extra cleaning services or facilities during the Covid-19 outbreak?

No.  There is no legal obligation on landlords to provide additional cleaning to premises during the pandemic. That said, some landlords have taken proactive steps to ensure the safety of their tenants and to allow them to best meet guidance from Public Health England.  You may want to check the service charge provisions in the lease to see if you can recover the costs of any additional cleaning services you offer.

10. Can I argue that my commercial lease has been frustrated by Covid-19?

This will be difficult. The pandemic is unlikely to be considered a frustration event. You would need to show the lease is impossible to perform because of the outbreak not just that the lease is harder to perform because of disruption to your business or financial difficulties. 

Tenants should also consider any relief or recourse to the insurance cover / any “uninsured risks” clauses in their lease.

If you have any Property-related issues or disputes, then Prettys Commercial Property Team have the expertise to assist you at this time. We recommend that any rent deferment arrangements are documented in the proper form and we can assist you with this at a fixed, reasonable price. We can also offer fixed fee initial reviews of any property-related disputes, to give you an idea of options and next steps. Please email CommProp@prettys.co.uk or call us on 01473 232121.

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