Latest Coronavirus: new protections against eviction for commercial tenants with immediate effect
UPDATE | The new Coronavirus Act 2020 has now introduced further measures to ensure that those tenants of commercial premises (including retailers) cannot lose their lease over the next three months if they fail to pay their rent during that period.
Many commercial landlords were already in discussions with their tenants ahead of the March quarter day as to what sort of payment plan may work for them to preserve cash flow rather than full payment of the quarter’s rent- whether by way of a total suspension of the quarter’s rent or converting to monthly instalments. But businesses remained concerned that a reduced cash flow could result in early termination of their premises leases and being forced to leave. That risk has now been removed by these Government measures.
If you’re a tenant, how does this affect you?
Normally, landlords have been able to terminate a lease and seize commercial property within 21-28 days after a rental payment falls due. However these new protections included in the new Coronavirus Act 2020 mean no tenant can lawfully be forced out of their premises if they miss a rent payment over the next three months.
Can you stop your rent payments to hold on to cash?
Yes, however, it is important to stress that these provisions will only delay the landlord’s rights; it will not affect a landlord’s right to claim forfeiture or recover this quarter’s rent after the next three month period ends. All business tenants – including retailers – must understand that the emergency legislation rushed through by the Government this week does not mean they can avoid paying any rent at all.
What about other bills?
These measures only extend to non-payment of rent – breaches of other covenants and lease provisions, such as those relating to repair and use, are not protected.
If you’re a landlord, how does this affect you?
Of course, this will be welcome news for tenants, but how does this legislation impact landlords and their cash flow? The Government insists they are monitoring the consequences of these measures for landlords, yet no formal protections have been put in place.
Does this mean landlords can’t recover debts from tenants?
The courts are still operating and landlords can still move to seek recovery of rent arrears etc. as a debt from tenants, either directly or by taking action against their guarantors or former tenants. Although landlords cannot now terminate business leases and evict business tenants for non-payment over the next three months.
How do I open negotiations with my tenant or landlord?
It’s important that any voluntary arrangements, such as rent holidays or moving to monthly payments for leases is arranged formally and properly documented – in order to protect all parties.
Supplementary letters are advisable, otherwise there is a risk that both parties may find they have inadvertently varied their lease, which could lead to its own unintended consequences further down the line.
Whether you are a tenant seeking to open urgent discussions or a landlord responding to a request from your tenant, care needs to be taken before making a proposal and also as to how best to document these arrangements in side letters. You need to ensure their terms are clear and binding and they do not prejudice other lease provisions and that they are personal to the parties and do not require either a lenders or bank consent.
This is a tough time for all in the retail and commercial property sector but the best advice is to get into these discussions as soon as possible and to try to negotiate a resolution that works for both landlords and tenants, rather than either side throwing down ultimatums.
Following a surge in enquiries, our expert team have developed a fixed fee service for commercial landlords and tenants in order to legally support the fast and efficient turn-around of rent negotiations. For more information about this service or how any of the above issues may affect you, download our guide here or please contact Martin Edwards or a member of our real estate disputes team in your local office.
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