When Covid 19 struck and we went into the first lockdown the Government created the Coronavirus Act 2020 (“the Act”), which amongst other things prevented landlords from taking steps against tenants to forfeit leases for non-payment of rent, where that non-payment arose solely as a result of Covid 19.
That left limited remedies for landlords such as forfeiting for reasons other than non-payment of rent (i.e. breaches of other lease obligations such as repairing obligations) or issuing proceedings at court to obtain a money judgment against the tenant for the unpaid sums. The Government also introduced a voluntary Code (Code of Practice for commercial property relationships during the Covid 19 pandemic) in June 2020 which encouraged landlords and tenants to essentially work together to reach terms but it acknowledged that the basic rules of landlord and tenant remained and that as a matter of contract rent remained payable.
As we begin to evolve from Covid 19 and restrictions are lifted some of the first cases are being tested in Court and in a number of cases the Court has granted orders in favour of the landlords for the sums claimed as owing by them under the leases. In some instances, the tenants had sought to rely on rent suspension provisions in the leases in relation to the landlord’s insured risks.
However, the argument failed where the notified Insured risks did not capture the nature of the pandemic, as most insured risks relate to damage to property only. Further arguments asserting frustration or temporary frustration of the contract by virtue of the pandemic also failed.
These cases therefore heed a warning to tenants who have rents outstanding that the Court are not going to act in their favour without good reason and that as restrictions lift it is important that they seek to reach terms with their landlord or suffer the consequences as landlord’s rights and remedies return.
In April 2021, the Government amended the Code of Practice to annex a proposed template to assist landlords and tenants in reaching terms in respect of arrears and future rents which amongst other things looks at how a tenant’s turnover has been affected during Covid 19.
It is important that any terms reached between landlords and tenants are properly recorded in writing either by a formal deed of variation or a letter of agreement /understanding signed by both parties in order that there is clarity as to the terms reached and to avoid disputes or misunderstandings in the future.
The Commercial Property team at Sydney Mitchell is here to assist landlords and tenants with this as we evolve from lockdown and we have a dedicated dispute and insolvency team who can offer advice in reaching settlement terms and to offer advice for those tenants who do not have the cash flow at present to make the historical payments or to landlords who are struggling to reach terms with their tenants.