As the coronavirus pandemic continues to spread, commercial property owners are attempting to navigate unprecedented challenges – with landlords becoming increasingly concerned about how the outbreak is likely to impact their business.
At Nelsons, we have seen an increase in the number of enquiries from landlords in relation to commercial leases which could be affected by the coronavirus pandemic. Below, we have provided answers to some of the most frequently asked questions we have been receiving.
The impact of the coronavirus on commercial leases
Can a tenant bring a commercial lease to an end as a result of the coronavirus?
No. A tenant can only bring a lease to an early end if they have a break right to terminate the lease. A tenant may attempt to argue that the COVID-19 outbreak amounts to a ‘force majeure’ event – which refers to the occurrence of an event that is outside the reasonable control of a party and which prevents them from performing their obligations under a contract. This must be clearly set out in any legal document, however this is not a clause commonly found in modern commercial leases.
Can a tenant request a rent suspension if their premises are unusable due to coronavirus and government legislation?
A tenant that is unable to use their lease premises as a result of COVID-19 may look for a rent suspension or a rent reduction.
Modern commercial leases only provide for a suspension if the premises are damaged, destroyed or unusable due to an insured risk – and usually, this would not include the coronavirus outbreak. Cover for this would only be available if the landlord’s insurer offered cover as standard under its policy terms, which is unusual.
Any insurance policies taken out after 11th March 2020 (the date the World Health Organisation declared the COVID-19 outbreak as a pandemic) are unlikely to provide cover for such instances. However, a check directly with insurance companies should be undertaken.
Therefore, in almost all cases, the tenant will need to pay the rent. However, new protective measures have been outlined by the Government which will mean that no business will be forced out of their premises if they miss a rent payment in the next three months. This means that landlords will not be able to exercise any right of forfeiture on tenants that cannot pay rent during this period of time.
However, it is expected that this will only delay a landlord’s right to forfeit until after the three month period ends, so commercial tenants will still be liable for the rent after this period. Further information on these measures can be found here.
Aside from the new measure that have been outlined, some leases may provide that rent is suspended in the event of an uninsured risk occurring, but that is unusual. Depending on the definition of uninsured risk, the landlord may be obliged to provide a rent suspension. If the landlord is, they should seek to look at their ‘loss of rent’ insurance.
If the lease does not provide for a rent suspension, a landlord is not obliged to accept the suspension. However, the landlord should give careful consideration as to whether to accept this request and, if so, a carefully drafted rent suspension or reduction letter should be prepared by a solicitor. If a tenant is concerned, they should be advised to look at their own business interruption insurance.
If rent is not suspended, can a tenant choose to withhold rent?
The answer is no, since a well drafted modern lease usually has a clause that provides that the tenant cannot withhold rent payments.
However, the new Government measures mentioned previously will mean that a tenant, who is unable to pay their rent during the next three months, will not be forced out of their premises in this three month period.
Who will be responsible for the costs associated with a deep clean?
Landlords responsible for the cleaning and maintenance of common parts of their building will be looking to provide more frequent cleaning services including deep cleaning, as well as additional resources such as hand sanitiser. Whether these costs are recoverable and to what degree will depend on the terms of the lease.
If the lease provides for a service charge, a landlord, depending on the drafting of the lease terms, should be able to recover the costs via the service charge provisions. Leases usually allow the landlord to recover the costs of services from a tenant as part of ‘good estate management’ and deep cleaning could be argued to fall into this concept.
How can Nelsons help?
Mary Gharmount is an Associate at Nelsons specialising in commercial property law.
At Nelsons, our team of expert commercial property solicitors advise landlords and business tenants in relation to commercial lease terms. We can advise on the full range of commercial lease considerations, including:
- Landlord consent
- Rent and rent reviews
- Service charges
- Assignments and sub-letting
- Lease renewals
- Recovery of possession
- Personal guarantees
- Responsibility for repairs
If you would like any further advice in relation to the subjects covered in this article, please get in touch with Mary or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or via our online form.