Coronavirus: How pandemic is causing underlying issues between landlord and tenant

Sam Ho and Verity Mount in the commercial property team, Barlow Robbins solicitors, discuss the impact of COVID-19 on landlords and tenants.

The Government’s recent announcement to close down all non-essential shops and community spaces is one of a number of measures to tackle the on-going coronavirus (Covid-19) crisis which will have a significant impact on landlords and tenants .

This article looks at the position many landlords and tenants are currently facing and ways both parties can work together.

Can a tenant claim for a reduction in rent if they cannot use their premises or are suffering cash flow issues at the moment?

Usually a tenant cannot claim a reduction or suspension of rent under these circumstances. Rent payment can usually only be suspended when a property has been damaged or destroyed by an insured risk (or sometimes an uninsured risk). As Covid-19 will not have caused damage or destruction to a property, then a rent suspension provision would not be triggered.

Can a landlord forfeit a lease if their tenant does not or cannot pay their rent?

Normally, if a tenant were to withhold rent, a landlord could peaceably re-enter the property without notice and take possession without court action by changing the locks, and effectively, ending (forfeiting) the lease. However, the new Coronavirus Act 2020 confirms that if a tenant misses a rent payment (being defined as any sum due under the lease) within the next three months (ending June 30, 2020, although this date is open to extension at the discretion of the government) then a landlord cannot effect forfeiture proceedings against them.

However, refusing to pay rents due under the lease would still entitle a landlord to issue a petition to wind up the tenant company and instruct bailiffs to collect goods of the value of the sum owed, or make a claim for payment in the courts.

Tenants must also note the three months moratorium noted above is only temporary and the sums not paid will, of course, remain due once the moratorium has been lifted.

Possible solutions to allow landlords and tenants to deal with the issues raised above.

• Tenants can ask to pay rent monthly rather than quarterly. While a landlord is not obliged to agree to this, it may be more commercially sensible for a landlord to agree to this, than have an empty unit.
• Parties may wish to invite the landlord to draw down on rent deposit funds in order to alleviate cash flow issues. However, relevant provisions extending the date by which the account has to be topped up would need to be included.
• A tenant may wish to suggest a “rent holiday“ for, say, three months, alternatively a reduction in rent for the same period, but on the basis, in either case, that the unpaid rent remains due and is  paid at a later date, on agreed terms. Consideration will need to be given as to whether interest should be charged on the deferred rent.
• A tenant may request that rent be converted to a turnover-only basis to help alleviate cash flow issues, but this will, of course, only be viable if the tenant is still trading.
• All of this presupposes that the tenant does not have insurance cover under a relevant business interruption policy.

If you require any legal advice or guidance on landlord and tenant issues or in connection with your lease, contact Helen Archibald, partner – Commercial Property: +44(0)1483 748541 [email protected], or Simon Fulford, senior associate – Property Litigation: +44(0)1483 464227 [email protected]