The COVID-19 pandemic and subsequent government guidance on social distancing has created a great deal of uncertainty for commercial landlords and tenants. As businesses are encouraged to operate remotely wherever possible – and many businesses in the hospitality sector are forced to shut their doors completely – many tenants are concerned that they will fall into rent arrears while operating at a reduced capacity.
In the Coronavirus Act 2020, it has been announced that there is to be no forfeiture of tenancies or issuing of new court proceedings for rent arrears until 30th June 2020 (at the earliest). While this provides some degree of protection for tenants, both landlords and tenants should act with trepidation in the current climate. Many commercial landlords still remain vulnerable as they remain liable for mortgage charges and overheads during this period.
We have received many questions from clients who are affected by these issues and have attempted to address some of these questions in the article below. It is clear that the best course of action for all parties is to communicate openly and be willing to compromise as we seek to navigate these uncertain times.
What are the issues facing landlords?
Many landlords will encounter cash flow challenges from tenants who are unable to pay rent while they remain liable for their own mortgages. An obvious solution is to approach their lender to seek a temporary payment holiday. In the current circumstances many lenders may be inclined to agree to this although they are not required to.
As new evictions are suspended, landlords are currently unable to either forfeit leases by peaceably re-entry or issue forfeiture proceedings to obtain possession of their property. For any possession orders which have already been made but are yet to be enforced, these will be treated as if the date for enforcement is after the emergency period (30th June 2020).
What are the issues facing tenants?
Tenants should consider their options carefully when deciding the best course of action. The guidance is clear that while tenants receive a degree of short-term protection, no conduct by or on behalf of landlords during the three month period waives their right to forfeit for non-payment of rent. Non-payment of rent in this scenario could also include service charge and interest on unpaid sums during the protection period (should the lease make this provision).
For small business owners and those in the hospitality sector who have had to close due to the COVID-19 pandemic, this legislation will give some respite and peace of mind as they can look to negotiate terms with their landlords.
What should landlords and tenants do next?
If it is at all possible to do so, it is always advisable that commercial tenants should continue to pay their rent. The legislation was created to provide a safety net for tenants from the initial shock of having to shut their premises and plan for a reduction in operations, not to allow them to withhold rent that they can afford to pay.
