Commercial rent alert for Covid-hit businesses

Companies must still pay their commercial rent during the pandemic, business owners have been warned.

It comes as businesses in certain sectors, particularly the retail, leisure and hospitality and beauty sectors, have either been closed or working to reduced capacity for the best part of 12 months – leading to a dire impact on the ability of some tenants to meet their financial obligations.

Charlotte Nutting, associate solicitor within the commercial and agricultural property team at Lanyon Bowdler, said businesses had to continue paying commercial rent even if their premises had been or were currently closed.

She said: “The only exception may be if there is a force majeure clause within the lease – which means either party can terminate a lease when an ‘extraordinary’ event occurs – however these are rarely found in your standard commercial lease.

“Most leases state that rent must be paid without deduction, so unless the lease contains a clause which enables rent not to be paid, the tenant will be bound and expected to pay.

“Tenants could also check to see if their lease is covered by an upcoming break clause, which would allow them to terminate the lease early and walk away from its obligations.

“Alternatively, a tenant could exercise their ability to assign or underlet the property, if the lease allows, which most do in some shape and form albeit there are usually conditions.

“If you assign a lease you effectively sell the lease on to a third party, or if you underlet a property you grant a lease to a third party out of the lease interest you have.

“But beware – both of these options may have conditions which require rent to be paid up to date before they can be exercised.

“If a tenant is struggling to meet their rental obligations, I would advise them to speak to their landlord in the first instance because an agreement may be able to be reached amicably and in the best interests of both parties.”

The Government has introduced the Coronavirus Act 2020, which suspended a commercial landlord’s power until 31 March to terminate a lease if a tenant falls into rent arrears, and which Charlotte says may be extended beyond this date.

She said: “However, as it stands at the moment, from April 1, if a tenant has fallen behind with their rent then the landlord can exercise their right to forfeiture and recover the property as they were able to do previously.

“A landlord also has the option to issue court proceedings for breach of lease, allowing them to recover their losses, and a landlord could issue a statutory demand for the winding up of a tenant company. Although again, this is prohibited until after 31 March where rental obligations can’t be met due to Covid-19.

“We would advise landlords to explore the options of recovering rent through effective dialogue with a tenant rather than begin legal action straight away.

“An agreement in this way might just prevent a landlord being stuck with an empty commercial unit they may be unable to fill for some time.

“The bottom line is that if a tenant falls behind with their rent during the pandemic it is still due and should be paid as soon as a tenant is able.

“If the rent is not paid back, then the landlord will once again soon have the right to forfeit the lease, issue court proceedings or commence winding up proceedings.”