Since the global outbreak of COVID-19, there has been a rise in popular demand for government intervention in the economy to support workers and businesses, whilst containing the spread of the virus. Governments around the globe have responded to this demand with actions including the closure of offices, establishments and stores. This leaves those businesses with lower, if any, income yet still affronting the cost of rent. With cash flow running low, so is the chance of landlords receiving payment for rent in the upcoming months. So, what does this mean for landlords and how can they ensure that future rent receipts are paid?
As the outbreak of the global pandemic deepens and establishments are forced to close the doors to their premises, cash flow becomes increasingly limited. This will naturally lead to tenants looking at cutting their costs, whereby rent will be one of their first considerations. Fortunately for landlords, tenants are unable to simply not pay their rent, regardless of the circumstances, unless there is a clause in the lease that allows them to do so. A well drafted commercial lease is highly unlikely to contain a clause permitting a tenant to withhold rent from the landlord. Though where a tenant has decided to withhold rent, a landlord has a remedy in the action of forfeiture – a process whereby a landlord is permitted to take back possession of the premises by peacefully re-entering and changing the locks.
However, new COVID 19 legislation – The Coronavirus Act 2020 – has suspended landlord action of forfeiture in those cases where tenants have missed their payment of rent for up to three months. These measures mean no business tenant can be evicted from the premises if they do not pay their rent for the next three months. This suspension is due to last until the 30th of June 2020, though can be subject to an extension if the government considers it necessary. Fortunately, if a landlord does not take any action due to non-payment of rent, this will not be considered as waiving their right of re-entry or forfeiture. As a result of this new legislation, landlords can expect to not receive payment for rent in the next few months, though the tenant will accumulate rental arrears. Once the suspension is lifted, tenants will be required to pay their arrears otherwise the landlord may action forfeiture, although it may be in a landlords commercial and reputational interest to hold back on such action and to look at different options available.
During this outbreak, in those leases where tenants are paying an insurance premium, landlords can expect requests from their tenants for copies of their insurance policy. Tenants can be expected to look towards reducing their losses by checking whether certain risks are covered by insurance policies. It is possible that “global pandemics” are risks allowing them to suspend rental payments though, clauses would need to be broad enough to cover this type of scenario. Nevertheless, it is highly unlikely that insurance policies cover such broad risks.
Consequentially, it may be beneficial for landlords and tenants to consider a voluntary rental payment agreement. As the Coronavirus Act 2020 will ease the pressure on tenants being evicted for non-payment of rent, landlords can expect their revenue to fall. It may be in the best interest of the landlord to renegotiate their payment schedule with the tenant to ensure income does not fall completely. If a landlord agrees to lower their tenants rent for the next three months (for example), this will increase their chance of receiving income.
Finally, although there are a range of options available to each landlord, every commercial lease is individual with a range of different stipulated terms. This article is not intended to be all encompassing: nor does it constitute legal advice. However, please get in touch with us if you require more specific advice on any query, whether on real estate matters or any wider business issues. We have a dedicated team addressing enquiries for our real estate clients.