The Emergency Coronavirus bill has been enacted. For commercial property the main consequence is that there will be no risk of forfeiture for non-payment of rent during the “relevant period” which currently is up until 30 June 2020 but might be extended.
It looks like the legislation will include service charge payments and insurance as part of the “rent”. Tenants do need to be aware that the rent is still owed along with any interest. The bill is silent on interest but the contractual position under the lease will dictate what if any interest is payable.
In most leases the rent may be suspended if damage to the property is caused by an insured risk and sometimes by an uninsured risk. It is however unlikely that leases will provide that the rent is suspended in the even that premises cannot open due to the government requiring premises to close.
Your business interruption insurance will state whether you might be insured for rent you are obliged to pay whilst the premises are closed. Some insurers may decide that closure as a result of COVID-19 is a ‘force majeure’ event and therefore any loss will not be covered.
You can ask your landlord for a rent deferral, rent free period, reduced rent or to pay monthly. The landlord does not have to agree but it is likely that many will wish to work with you in very difficult trading conditions.
As a rule, you must continue paying rent even if your premises close. If closure is due to COVID-19 then it will not be unreasonable for your landlord to close the common parts which then obstructs access to your premises.
However, if your landlord closes for other reasons, he may be in breach of the covenant to allow quiet enjoyment.
If there are regulations forcing buildings to shut, you cannot stop paying rent. You should request a rent free, rent deferral, pay reduced rent or to pay monthly.
If your landlord agrees to a rent concession, this should be documented by way of a deed of variation or side letter. For a tenant, a deed of variation is better because it is a change to your lease obligations. A side letter may be acceptable but is only a short-term arrangement.
If you have a lease covenant to keep open during usual trading hours, some landlords may agree a variation to this where the tenant does not have to keep open in particular circumstances. Such an example would be a requirement to close because of legislation.
It is unlikely that a landlord can force a tenant to open despite the lease including a keep open clause. Nevertheless, your landlord is able to seek damages due to breach of contract. In negotiating better trading terms, it would be wise to try and agree that a keep open provision will not apply during closure because of COVID-19.
The obligation to remain in physical occupation and to trade does not appear in the majority of leases. Without a keep-open clause, your obligation is only to pay rent and comply with other lease obligations..
If the government passes regulations then the forcing premises to close then statutory requirements are likely to prevail over the usual tenant’s covenant to comply with.
If there is a service charge lease provision, then you will still have to pay for the services and landlords will remain obliged to provide such services.
If there is a need to carry out additional services such as deep cleaning then the additional costs are likely to be recoverable under the service charge provisions as reasonable costs.