Practical Advice for Commercial Landlords During Covid-19
Pandemic – Guidance for UK Commercial Landlords & Owners of Commercial Property
The recent Covid-19 (Coronavirus) Pandemic has created a great deal of uncertainty among various sectors, with commercial landlords feeling a huge strain. This is due to the measures that the UK Government have understandably taken, to safeguard occupiers of commercial property and commercial tenants and in turn the UK economy.
There are several steps that commercial landlords can take in compliance with the UK Government Coronavirus Pandemic response to ensure both they and their tenants manage to stay afloat during these unprecedented times, and during the economic shock that will follow. First things first, is for commercial landlords to understand the measures which the UK Government has put in place.
Latest Government Measures
- There is a temporary ban on commercial landlords issuing statutory demands or winding up petitions. On 23rd April 2020, the UK Government released new information detailing an addition to the Corporate Insolvency and Governance Bill. Commercial landlords will no longer be able to issue statutory demands or winding up petitions to commercial tenants. This is a temporary ban placed on the use of debt recovery procedures by landlords to protect commercial tenants in sectors such as retail, entertainment and leisure which have been hit particularly hard with enforced closures.
- The UK Government has, in addition to the above, taken measures aimed at preventing rent recovery via the commercial rent arrears recovery (CRAR) as set out in the Tribunals Court and Enforcement Act 2007 -unless owed 90 days of unpaid rent.
- The rationale is to allow commercial tenants in the current economic climate the “breathing space” they need by preventing Commercial Rent Arrears Recovery (CRAR) to take place – unless the landlord is owed 90 days of unpaid rent. This does not mean that tenants should kick their shoes off and put their feet up as the UK Government has asked tenants to “pay rent where they can afford it or what they can,” to lessen the strain on commercial landlords. This is not a suspension of rent situation.
- The Coronavirus Act has placed a moratorium on evictions for commercial tenants for at least a three-month period.
Recommendations: What Can Commercial Landlords do During this Time?
- Commercial landlords should liaise with their tenants as well as investors or funders to determine the preferred outcome for all parties.
- Ensure any new decisions of any type is documented carefully and correctly. They should seek the assistance of experienced commercial property lawyers in this regard.
- Commercial landlords are urged to turn to the ‘Coronavirus Business Interruption Loans Scheme.’ Read here for more support options for small businesses.
The UK Government has understandably offered substantial support and assistance to commercial tenants in its approach to shore up the UK economy, from the impact of the COVID-19 Pandemic. As such it can be quite difficult for commercial landlords to know where they now stand or how to assert their rights. Particularly, as the same level of assistance given to commercial tenants appears to be lacking when it comes to them.
Many may be feeling somewhat left out in the cold and quite understandably, this is a matter of concern to them the result of which it could result in the temptation to pursue or issue the various debt recovery procedures. However, this approach might come back to bite as the courts are unlikely to view such applications with much favour during these troubling times and even the most unholy tenant may come up smelling like roses in the light of such aggression.
The UK Government has urged commercial landlords to initiate dialogue with their tenants rather than taking an adversarial approach, and to find collaborative solutions that work for both parties. Thus “Getting to Yes” has become ever increasingly important in the current climate.
We would echo this approach of the UK Government, but would add to this by recognising that it is often difficult to see the wood from the trees, particularly where the relationships have previously been fractious, even away from the current situation. In such cases, we would counsel that landlords should seek the assistance of a mediator or experienced corporate or commercial property lawyers who can help them tactically and successfully navigate the technical maze of the landlord-tenant relationship.
Landlords may well find that this could be a golden opportunity to negotiate deals which will improve landlord position in the long run. Thus also ultimately improving the quality of their investment. There are several examples, one of which could include extending lease terms in exchange for a temporary rent freeze. In any event, landlords are counselled against taking an overly aggressive or adversarial approach.
It is vital to note that the UK Government’s aim is to protect tenants from ‘aggressive rent collection’ and this may well in turn be the ultimate view of the courts. The Business Secretary, Alok Sharma MP, has said: “The majority of landlords and tenants are working well together to reach agreements on debt obligations, but some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics”. No commercial tenant can be evicted if they cannot pay their rent because of the pandemic (for at least three months).
Can a tenant terminate a lease early due to the coronavirus pandemic?
In regard to where a tenant has attempted to end a commercial lease early, note this would only apply if the acting tenant has a break clause or right to terminate the lease in such circumstances. They may wish to take the approach that the pandemic is a ‘force majeure’ event in the contract. However, this clause is not commonly found in commercial leases. Thus, for a contract to be terminated early – due to a ‘force majeure’ event – it must be set out and detailed in a legal document. A careful review of the terms of the Lease will need to be undertaken where possible by an experienced Corporate or Commercial Property Solicitor who will be able to advise you and provide assistance with any required renegotiation with tenants. On the balancing side of the equation, the COVID-19 Pandemic should not be allowed to be used a camouflage for tardy tenants who, apart from the current pandemic, are persistent in breaching the terms of their leases. In such circumstances, landlords should engage in active but measured debt recovery activities and seek the assistance of experienced commercial property solicitors who may advice and assist with required commercial property procedures and solutions.
Finally, and by way of emphasis, it is important to ensure everything is documented accurately, including every detail of discussions between themselves and their tenant. As always, the best advice is to seek advice and seek it early.
For further information, or to speak to a member of our excellent team of Solicitors, you can contact 01482 616 616 or 0800 037 1305.
Please note that this article is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.