As the Government announces new measures to protect the high street from ‘aggressive rent collection and closure’, commercial property litigation partner David Bailey has provided some advice for landlords and tenants alike.
David said: “We have advised a number of commercial landlords and tenants since the crisis began and our message has been that there is no “one size fits all” solution.
“Landlords and Tenants should have an open discussion and exchange of information about their circumstances, how the pandemic affects them as a business, the availability and effect of government financial support, the position regarding insurance e.g. the tenant’s business interruption insurance, the financial strength of the parties and the stance being taken by the Landlord’s lender.”
The Government’s new measures come after increased pressure from businesses for assistance with keeping their businesses afloat at a time when many can’t trade from their usual premises yet are still liable for rent.
“Unfortunately we are seeing at least as many tenants saying “we are not paying any rent” as landlords saying “pay all the rent”-and the best approach is likely to lie somewhere in between those extremes,” adds David.
“Once an agreement is reached it is important to then instruct a solicitor to record it in writing so that it has the desired legal effect.”
With Communities Secretary Robert Jenrick also hinting that the Government may look to help landlords in dealing with their lenders (and a number of commercial mortgage lenders offering their borrowers more flexibility with payments) – David suggests 5 steps landlords and tenants should be looking at now to make sure they are in the best position moving forward.
1. If they have not already done so, Landlords and tenants should check their leases for force majeure clauses although this is unlikely to assist tenants and excuse them from meeting their obligations. Similarly, the doctrine of frustration is unlikely to apply.
2. Both landlords and tenants must check their policies of insurance-tenants for business interruption coverage and landlords for loss of rent-although again, most policies are unlikely to provide cover against COVID-19.
3. Landlords should be aware of the restrictions on their usual powers of enforcement against non-paying tenants (i.e. removal of the right to forfeit for non-payment of rent until 30 June and as per the Government’s announcement yesterday, removal of the ability to instigate Insolvency proceedings as a way to force payment, again until 30 June).
4. Consistent with the message from Government, both parties should communicate openly with each other. Tenants should explain in detail how the virus is impacting them-rather than just expecting landlords to accept that it is having a major impact without question. Both parties should then review the Government financial assistance packages available to the particular tenant and tailor any rent concession arrangement accordingly e.g. a rent reduction or rent deferment. This will help reach amicable solutions more quickly. Whilst the Government is expecting Landlords to be flexible with their tenants it has also said that tenants should still pay the rent if they can.
5. Landlords should speak to their lender to see if they will provide any mortgage payment relief. The focus from the Government so far has been on the private mortgage and buy to let mortgage market (where borrowers are able to apply for 3 month payment holiday) but the scheme may be widened to commercial mortgages.
Napthens has been providing useful guidance for all areas of business impacted by the Coronavirus outbreak on its dedicated COVID-19 hub. If you would like to discuss commercial property issues in more detail please contact a member of our team, or David directly.