Covid-19 – Issues for commercial landlords and tenantsJuly 02, 2020
As part of its Covid-19 response, the Government has extended the protection against action for Tenant’s to the end of September 2020 and called for a co-operative approach within the commercial property market.
We recommend that commercial Landlord’s and Tenant consider the following issues:
- Lease terms – Government guidance is keen to stress that landlords and tenants should cooperate and discuss the options. Changes to invoicing, perhaps to monthly rent can be negotiated and agreed, as can longer term payment deferments or concessions. Such arrangements should be confirmed in writing and by formal variation, to make sure they are enforceable.
- Rent Deposit – are there deposits held in relation to the commercial letting?. If they have been drawn upon already during the outbreak, is there a requirement for the tenant to ‘top up’ the deposit.
- Guarantors – with increased concern about insolvency risk it can be important to confirm if there are any guarantors or other third parties (for instance former tenants) responsible for payments under the lease. Service of formal notice in good time needs to be considered.
- Undertenants - if a tenant is in arrears then a landlord may be able to take action with any undertenant, such as to ask rent to paid direct to the landlord. If a tenant asked for deferment or concessions, landlord’s should consider if the undertenant is still paying the tenant.
- Service charge – there is issue as to service charge payments – such as no cleaning of common parts during lock down or perhaps the cost of deep cleans, to now reopen multi let buildings. Sticking a fair balance can be hard and there is a risk of dispute about service charge payments.
- Physical alterations - returning to working environments means challenges in maintaining safe distancing and reducing contact. Changes vary from ‘sneeze screens’ installations and tape but can mean big reconfigurations and repurposing of space - including erecting new walls to repurposing large meeting rooms or breakout spaces with additional desks - and this may require a landlord’s consent.
- Rent linked to turnover – such clauses are already used in some leases and retail environments. This type of clauses link the tenant’s rent payments to their actual turnover. Tenants may now look for this type of clause, as it goes some way to share the risk, in the event the tenant were forced to close.
- Further outbreak rent suspension – in some cases tenants are looking for clauses which suspend the rent all together, in certain situations. These clauses suspend the rent (or a fair proportion) in the event that a defined ‘use prevention measure’ occurs (such as the lockdown)and this measure means the tenant is unable to use the property. The suspension can be until either the end of the prevention measure or a fixed period of time (as a long stop).