With all non-essential shops opening on Monday 15 June and the June quarter’s rent (which usually falls due on 24 June) imminent, commercial landlords and tenants are being encouraged to discuss the position and work out commercial solutions, which are likely to involve varying the terms of their current arrangements.
The current position for commercial property is:
there is a temporary “moratorium” on forfeiture of commercial leases for rent arrears, until 30 June 2020, which may be extended
the Commercial Rent Arrears Recovery Procedure (which allows the landlord to seize the tenant’s goods following rent arrears) has been varied from 7 days’ rent arrears to require instead 90 days’ rent arrears
it is theoretically still possible to serve a statutory demand and/or issue a winding up petition for commercial rent arrears, but this is being varied by the Corporate Insolvency and Governance Bill, which is due to receive royal assent very shortly
it is still possible to issue proceedings to recover rent arrears for commercial property, together with interest and costs
However recent Government announcements that are likely to affect the June quarter’s rent include:
the Corporate Insolvency and Governance Bill (which is due to limit the landlord’s ability to serve statutory demands and/or issue winding up petitions) is due to receive royal assent very shortly
the Government is shortly due to publish a Code of Practice for the Commercial Sector, which is expected to set out guidelines for commercial landlords and tenants when dealing with rent during the current pandemic
large-scale, Government-backed lending facilities have also been announced to assist business, including landlords, during the current pandemic
In the circumstances, both commercial landlords and tenants are likely to be expected to discuss the position and, where possible, reach a compromise in order to allow the tenant’s business to continue but, at the same time, ensure that the landlord is able to continue drawing an income, potentially with assistance from the bank.
The points that landlords and tenants will need to consider include the following:
these measures are only temporary and do not remove the obligation to pay rent
whether the tenant’s business is viable after lockdown
whether the landlord can re-let the premises and the potential loss of income plus liability for business rates if it cannot
whether the landlord and tenant wish to agree a rental “holiday” and/or rent reduction to allow the tenant to continue its business and the landlord to continue receiving rent
Ultimately, both landlords and tenants are likely to be having these conversations very shortly, and it is crucial that both parties ensure that their position is properly protected and that they are clear about any terms that are agreed, as this can affect the position for the duration of the lease. Informal or casual arrangements between the parties are likely to lead to misunderstandings or expensive litigation in more serious circumstances.
