Coronavirus: Commercial premises and security of tenure

Shakespeare Martineau

The Government announced further new measures to ensure that those tenants of commercial premises (including retailers) who have security of tenure, cannot lose their lease over the next three months if they fail to pay their rent during that period.

These protections will no doubt come as a major relief for thousands of businesses who would normally be facing the threat of action after the next quarterly rental payment falls due to landlords.

Many commercial landlords were already in discussions with their tenants ahead of the March quarter day as to what sort of payment plan may work for them to preserve cash flow rather than full payment of the quarter’s rent- whether by way of a total suspension of the quarter’s rent or converting to monthly instalments.  But businesses remained concerned that a reduced cash flow could result in early termination of their premises leases and being forced to leave.  That risk has now been removed by these Government measures.

If you’re a tenant, how does this affect you?

Normally, landlords have been able to terminate a lease and seize commercial property within 21-28 days after a rental payment falls due. However, these new protections, included in the emergency Coronavirus Bill currently going through Parliament, will mean no tenant can lawfully be forced out of their premises if they miss a rent payment over the next three months.  These protections will come into force as soon as the Bill receives Royal Assent and will last until 30 June 2020, with an option for the Government to extend if needed.

However, it is important to stress that these provisions will only delay the landlord’s rights; it will not affect a landlord’s right to claim forfeiture or recover this quarter’s rent after the next three month period ends.  These measures only extend to non-payment of rent – breaches of other covenants and lease provisions, such as those relating to repair and use, are not protected.

Nevertheless these measures throw a lifeline to some commercial tenants at this challenging time where rent is usually one of their most significant expenses after payroll.

If you’re a landlord, how does this affect you?

Of course, this will be welcome news for tenants, but how does this legislation impact landlords and their cash flow? The Government insists they are monitoring the consequences of these measures for landlords, yet no formal protections have been put in place. For the time being, landlords would be wise to discuss with their tenants to see if voluntary arrangements can be negotiated on suitable terms that protect the long term commercial interests of both parties.

How do I open negotiations with my tenant or landlord?

It’s important that any voluntary arrangements, such as rent holidays or moving to monthly payments for leases is arranged formally and properly documented – in order to protect all parties. Whether you are a tenant seeking to open urgent discussions or a landlord responding to a request from your tenant, care needs to be taken before making a proposal and also as to how best to document these arrangements in side letters. You need to ensure their terms are clear and binding and they do not prejudice other lease provisions and that they are personal to the parties and do not require either a lenders or bank consent.

Contact us

Following a surge in enquiries, our expert team have developed a fixed fee service for commercial landlords and tenants in order to legally support the fast and efficient turn-around of rent negotiations. For more information about this service or how any of the above issues may affect you, please contact Martin Edwards on 07909 925 945.

Martin Edwards
Partner
Shakespeare Martineau