The coronavirus pandemic is creating huge problems for both tenants and landlords of commercial properties. The unprecedented lockdown means that most commercial tenants have seen their income hit, and many tenants have been forced to close their properties down (particularly in the retail and hospitality industries). As tenants struggle to make rent payments, landlords find themselves facing shortfalls in income, which creates a knock on effect for those landlords who rely on the rental income to make mortgage repayments to their lender.
The Coronavirus Act 2020 states that up to 30th June 2020 landlords cannot forfeit/end commercial leases due to non-payment of rent by the tenant. (The government may decide to extend this beyond 30th June.) It is reassuring for tenants to know that, for now, their lease cannot be ended for non-payment of rent, although any unpaid rent will continue to accrue and remains payable.
Generally speaking, it is in the interests of both tenants and landlords to ride out the current crisis together, and get back to normal as soon as possible. Tenants do not want to be forced out of their properties and landlords do not want to be left with empty properties that are likely to be difficult to let in the immediate future. With this in mind, if a landlord is willing to assist its tenant who is struggling to pay rent, there are a number of possibilities:
If an agreement can be reached then it is advisable to properly document this through a side letter or side agreement. Landlords will require the prior approval of their lender for certain options, for example, entering into a new lease. If landlords are unwilling or unable to find a mutually beneficial arrangement with their tenant then there are ways that landlords can look to recover unpaid rent.
It is difficult to make commercial decisions when there are so many uncertainties with the current situation. We do not know how long the lockdown will last nor how long it will take for businesses to start getting back to normal. We also do not know what future assistance may be provided by the government to landlords or tenants of commercial properties.
However, for now there does seem to be a feeling that “we’re all in it together,” and hopefully commercial tenants and landlords (and lenders) can work together to get through this crisis.
Published on 28 April 2020