COVID-19: Occupiers Guidance

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COVID-19: Occupiers Guidance

Published 20 abril 2020

As we anticipate lockdown being extended for at least several more weeks, we answer some of the most frequently asked real estate questions by occupiers concerned about property costs, as one of their larger outgoings.

If I can’t use my premises, I don’t have to pay my rent do I?

You must continue to pay your rent.

As a tenant your contractual obligation is to pay your rent, usually in instalments, on fixed dates during the year. It is not the landlord that is preventing you from using the premises; the landlord is not in breach of its obligations but is still entitled to its rental income. Remember, if you have sublet any of your premises to a third party, you’re also a landlord, and entitled to the agreed rent from them.

Don’t forget, many landlords will have acquired the building with the help of debt from a lender. Your rent will be used to help service that debt; you breaching your obligations to pay rent, may also mean you’re putting your landlord in breach of its obligations to make repayments to its lender. So, if you are genuinely struggling to pay your rent, open up a dialogue with your landlord, ask for help but be prepared to open your books and demonstrate genuine hardship. Help can come in many guises including: rent free periods, rental payments being deferred or reduced, but expect to give something back, maybe agreeing an extension to the term of the lease, pushing out a break date or adjusting the rent review pattern.

But if I don’t pay, there’s really nothing my landlord can do in this environment is there?

There most definitely is.

If you didn’t pay the rent due on or after 25 March, you can’t be evicted for non-payment, but that moratorium on non-enforcement will only stay in place until 30 June (unless the Government extends that date). After that, the landlord could take action to forfeit the lease and evict you from your premises.

Although, that line of enforcement is, for the time being, suspended, the landlord has other effective remedies available to it. The one we are seeing threatened most often is the service of a statutory demand. This is the first part of the process used to wind up a company that has not paid its debts. Little time, effort and cost is needed to serve such a demand. The ramifications for the tenant are however severe.

I’ve heard that force majeure will get me out of trouble – it will won’t it?

Unfortunately not.

Force majeure is neither a statutory or common law principle in England and Wales and as such it can only be relied upon if it expressly forms part of the relevant contract. In essence, and as most commonly drafted, the occurrence of one or more specified events will allow one or other of the parties to a contract certain reliefs (i.e. more time to perform obligations, being released from certain of those obligations and potentially allow the contract to be terminated). 

Although force majeure is commonly found in commercial contracts (i.e. for the delivery of goods and services) it is rare to find it appearing in a commercial lease.     

My lease contains rent suspension provisions in circumstances where I can’t use or occupy my premises – can I take advantage of these provisions?

No.

A well drafted lease will contain rent suspension provisions, but there is one very big caveat to being able to take advantage of them:  the reason for not being able to use or occupy the premises must be linked to an insurable event covered by the landlord’s building insurance. The list of insurable events is often very long, but on the whole, the event must result in some degree of damage or failure, which in turn prevents or restricts access to the premises (i.e. a fire, flood, equipment breakdown).

Will I get a rent rebate that acknowledges the fall in use of building services?

Probably not, but it will depend on the terms of the lease.

That list of services, buried away at the end of the lease, is usually very comprehensive and often unwieldy, but take a closer look. A well drafted lease will separate the services into two distinct silos: those that are mandatory and must be provided (i.e. keeping the structure of the building in repair) and those that are discretionary and may be provided, for instance, if the landlord deems it reasonable to do so or maybe where it is in the interests of good estate management to do so (i.e. cleaning the common parts).

There is a balance between the landlord discharging its obligations to its tenants and keeping the building ticking over. Landlords will not be thanked for continuing to provide services that are not being used, but wisely managing services will undoubtedly see cost savings for the tenants, although these are unlikely to be felt until after the service charge end of year reconciliations have been calculated. 

Key Contacts

Nick Marshall

Nick Marshall

London - Walbrook

+44 (0)20 7894 6886

Graham Brothwood

Graham Brothwood

Bristol

+44 (0)117 918 2120

Alison Key

Alison Key

Manchester

+44 (0)161 934 3166

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