Uncertain times call for extraordinary measures for Landlords and Tenants

The following article was written by Salina Lim of our Conveyancing team. 

 

Commercial tenants and landlords have an ongoing relationship in relation to lease terms despite the impact of COVID-19 on the economy on a global scale. This article touches on the various battles that tenants may endure against landlords, and vice versa during the current pandemic.

 

Generally each commercial lease is worded differently. It is imperative to seek proper legal advice on the individual lease before taking any action.

 

If the law is taken into your own hands, you may run the risk of serious legal consequences. For instance, the offender may be subject to legal action and struck with financial penalty for a breach of the lease.

 

Having a high level of awareness is key to this predicament in making a proper decision which could save considerable costs in respect of landlord-tenant disputes.

 

We have put together a couple of considerations for landlords and tenants during this crisis; they are as follows:

 

Rent and other charges due and payable

 

Tenants should be mindful that rent, service charge and other monies (if any) due under their lease continue to be payable despite the coronavirus outbreak. If the tenant has difficulty paying rent, it may be worth having a discussion with the landlord to suspend, defer rent or seek a rent concession before it falls due. If both parties agree, the negotiations should be formally documented in writing.

 

Landlords may choose to suspend, defer rent or provide a rent concession for a certain period (subject to review) to avoid the tenant becoming bankrupt or insolvent. Before the landlord makes a decision, it is highly recommended that independent legal advice is sought to protect the landlord’s best interests in light of the current situation.

 

Insurance implications on the business premises

 

It is fundamental that the tenant checks their current insurance and policy schedule to determine if any business losses suffered due to ‘notifiable diseases’ are covered.

 

For landlords, please note that a loss of rent under the insurance policy may not be covered due to a ‘non-physical damage’ event i.e. COVID-19. Generally speaking, insurance cover for loss of rent tends to be effective when the premises cannot be occupied due to an insured risk with physical damage or access.

 

Termination of lease as a result of COVID-19

 

A tenant may not end a lease unless they have right to do so, for instance, by exercising the break clause, if available. The tenant should check with their solicitor if there is a break clause and whether it may be exercised or not. If a break clause does not appear in the lease, the lease conditions will continue to apply to the tenants and landlords as per usual and must be strictly complied with.

 

Tenants should check whether they have a ‘force majeure’ clause as it may possibly allow the tenant to not perform their obligations under the lease due to the lockdown set by the Government since the tenant cannot to run their business.  However, a force majeure clause rarely ceases to exist in most commercial leases.

 

Landlords should be aware that the Government has currently implemented protective measures in favour of tenants. This means that no businesses will be forced out of their premises for non-payment of rent up to 30 June 2020 or as to further extend the period (subject to change). This protective measure impacts the Landlord’s rights to exercise forfeiture (the loss of property due to a breach of obligation under the lease).

 

Where do we go from here?

 

This article is current as of 14 April 2020, particularly if there are any changes to the law. If you would like current legal advice on your commercial lease, please get in touch with Lisa’s Law Solicitors to offer you specialist advice.

 

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