Leases and COVID-19 – How are landlords with commercial tenants affected?

Olivia Foster, in Blandy & Blandy’s commercial property team, outlines the impact of the Coronavirus (COVID-19) pandemic on landlords with commercial tenants.

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

Under Section 82 of the Act, if your tenant misses 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 they will be protected from eviction (normally referred to as forfeiture in the commercial context), should they be unable to pay their rent.

Rent is defined in the Act as any sum they are liable to pay under the lease. Under the Act and during the relevant period, only 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.

If a tenant approaches you to state they will no longer be paying the rent under their lease, it is important to check whether the lease allows for such unilateral variation of terms.

The chances are it does not and this will therefore not be acceptable! However, it is important that if you receive a request from a tenant you do not ignore it, as this could be considered acceptance of a variation of terms of the lease. You should seek legal advice as soon as possible in relation to your rights and how best to protect your position.

You may decide to negotiate a temporary change in rental payments as you may consider it is better to receive some rent than take the risk that the tenant fails completely.

Alternatively, you may be willing to consider allowing your tenant a rent holiday. You will need to consider when and if you will expect the tenant to pay the rent and whether you require interest to be payable on top at a later date.

There are circumstances where you may require third party consent to any temporary changes. If you have a charge over the property you may need to liaise with your lender and obtain their consent to avoid breaching any of your obligations as borrower.

Similarly, if you have taken a lease of the property and subsequently sub-let it, you may need to request your superior landlord’s consent as many licences to sub-let contain restrictions on the variation of terms or waiving breaches of the sub-lease without prior consent of the superior landlord.

If you are concerned, it is important to open a dialogue with your tenant as soon as possible to try and agree the best solution for both parties and maintain a good relationship going forward.