COVID-19 and commercial tenancies

Olivia Foster, in Blandy & Blandy’s commercial property team, explains the impact of coronavirus (COVID-19) on commercial tenancies.

The impact of coronavirus (COVID-19) is being felt around the world as legal and practical issues continue to arise in respect of business disruption.

Businesses around the UK are feeling the strain as the Government announced on March 23, 2020 numerous businesses and premises must close. But where does this leave a tenant of a commercial premises?

The starting point for any tenant would be to carefully read your lease to establish what terms you are bound by and what rights you have.

Simply refusing to pay rent could entitle the landlord to exercise several rights they may have under the lease. The lease may provide that the landlord is entitled to charge interest on any arrears. Usually interest will be charged from the day it becomes payable, up until the date of payment.

Moreover, the landlord may be entitled to exercise the forfeiture provision in the lease, which means the landlord is entitled to re-enter the premises and take back occupation, bringing the lease to an end.

The Coronavirus Act 2020 (“the Act”) was given Royal Assent on 25 March 2020.

Under Section 82 of the Act, if you miss a rent payment during the relevant period (currently defined as March 26, 2020 to June 30, 2020 or such later date that may be specified) due to Covid-19 you will be protected from eviction, should you be unable to pay your rent.

Rent is defined in the Act as any sum you would be liable to pay under your lease. It should be noted that under the Act and during the relevant period, no conduct by or on behalf of a landlord, other than an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent.

It is not clear if evidence and additional information will be required to satisfy the landlord and/or the Government that non-payment of rent is due to loss of income as a result of Covid-19. It is also possible that interest is payable to the landlord when payments are finally made at a later date.

If you are concerned about being able to pay your rent, it is worth speaking with your landlord as soon as possible. Given the current climate, your landlord may agree to change the way in which you pay rent, such as a rent holiday (subject to an agreement to pay the rent at a later date).

Another option to establish is what insurance you or your landlord may have in place. The lease will define Insured Risks and possibly Uninsured Risks, but these risks will relate only to damage to the premises. Your landlord may have loss of rent insurance, but this will very likely only apply where the rent is suspended due to property damage.

You or your landlord may have business interruption insurance, which may provide cover for a claim related to Covid-19. If so, your policy may list Specified Diseases and Notifiable Diseases, the latter of which are dictated by the Government.

Speak to your insurer or broker, and ask your landlord to do so too, in order to establish if either of you have any revenue or profit protection.