- Can my tenant stop paying their rent if they have shut their business down?
The short answer is No.
Any tenant of commercial premises must continue to comply with the terms of their commercial lease, including payment of rent, unless the lease states otherwise.The government has suggested that commercial landlords and tenants consider coming to an amicable agreement about rent breaks. However, we would suggest that you take advice from a solicitor before any variation to the terms of the lease are agreed.
- Can I take back possession of my commercial property if my tenant is not paying rent?
It is important to be aware that a landlord can only forfeit a premises if there is a ‘forfeiture’ clause in the lease.As a result of COVID-19, from the 26 March 2020 – 30 June 2020, a landlord cannot enforce any forfeiture, or ‘right of re-entry’, clauses in their leases. However, this end date is looming and could still be extended.
This does not mean that the tenant is entitled to rent-free periods. The rent is still due and, if it is not paid and arrears are not cleared before the government ban ends, landlords can enforce the forfeiture clauses in the lease as soon as restrictions are lifted.
- As a landlord, how can I protect my position?
Firstly, unless you expressly waive your right to forfeit, you can still enforce the right after the government restrictions are lifted. Therefore, you should ensure that you do not expressly say anything to the tenant which will be treated as a waiver. Secondly, you should make sure your tenant knows that the rent is still due and that you will enforce the terms of the lease if necessary.
- Can I still issue court proceedings / serve a statutory demand to recover unpaid rent?
Landlords are still able to issue court proceedings to recover any unpaid rent, however it is unlikely that matters will be dealt with quickly by the Courts due to reduced court staff. This is therefore not a quick way of resolving matters and with most court hearings adjourned, courts are already inundated with dealing with ongoing cases.Even if a landlord successfully obtains an order for the rent arrears to be paid, they will have to take enforcement action if the tenant does not pay up. Landlords should be careful not to ‘throw good money after bad’ if their tenants’ business is truly struggling during this pandemic.
In addition, there are cases whereby landlords have threatened to serve statutory demands on their tenants. This is the first step before issuing winding up petitions or starting bankruptcy proceedings in order to keep the pressure on their tenants during this time.
The government guidance does suggest that statutory demands can be void if they are used aggressively.
- As a tenant, how can I protect my position?
You should ensure that any agreements reached for reduced rent/suspension periods are realistic, in regards to payment of any arrears, to avoid the landlord forfeiting the premises or taking court action against you. There are potential arguments that any failure to pay rent or any other material breach of a lease could result in a landlord opposing the renewal of a lease under the Landlord and Tenant Act 1954. You should ensure that you communicate openly with your landlord about your proposals if your lease is due to come to an end.
For Commercial Landlords and Tenants:
- Can a landlord or a tenant still serve a valid break notice under the terms of a lease?
Yes, the provisions of a lease should continue to be observed and adhered to. Tenants should be cautious when exercising a break clause if they have not paid all rent up to date, as there is a potential that the break notice can be invalid if rent remains unpaid.
We therefore re-iterate the need to take independent legal advice when agreeing to any variation of the lease to ensure that any agreement, in regards to rent suspension/reduction, allows a break notice to be validly served.
- The lease is coming to an end, can I just walk away?
Both commercial landlords and tenants must comply with the law as set out under the Landlord and Tenant Act 1954. That is, if the lease does not contract out of this act, then depending on the terms of the lease, either a section 25 or section 26 notice should be served. This avoids a landlord having an empty property, or a tenant being evicted from their business premises, at short notice.
A landlord cannot bring a lease to an end on the lease termination date just because a tenant has missed rental payments. Likewise, a tenant cannot simply hand back the keys if they are unable to pay the rent due to their business being affected by COVID-19.
Both parties must comply with the terms of the lease and the Landlord and Tenant Act 1954. Legal advice should be taken before any action to terminate a lease, to avoid the other party pursuing them for breaching the lease terms.
Whether court proceedings are issued, or insolvency measures are taken, Courts have discretion and, in these unprecedented times, Judges may be sympathetic towards tenants whose businesses have been affected by this crisis.
Each case is fact dependent. Landlords and tenants are urged to take legal advice before taking any measures that breach the terms of the lease.
These are unprecedented times and landlords and tenants should continue to comply with the terms of their leases at all times if possible. Otherwise, the Government is encouraging parties to communicate and work together to seek a resolution.
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