Covid-19: Payment holidays for commercial tenants – a problem delayed?

As has been announced by the Government, it has taken the unprecedented step of preventing landlords from forfeiting a lease or seeking possession from a tenant due to non-payment of rent between the period 25 March 2020 and 30 June 2020 (or as may be extended).

This gives tenants a “rent holiday” but the wording of the legislation does not amount to a waiver of rent or a rent-free period. The language used in correspondence between landlord and tenant may also be important to confirm whether or not the landlord has granted a rent holiday or in fact they have agreed to grant a rent-free period.

The Coronavirus Act 2020 (“Act”) does not make clear what will happen after 30 June 2020 (or such later date) and therefore it will only have the effect of delaying a problem for a tenant where rent has not been paid, whether before or during the relevant period announced by the Government.

For example, the Act does not stipulate how soon those tenants who have been unable to pay the rents due under their leases have to repay the arrears. Additionally, there is nothing in the Act preventing a landlord from simply forfeiting a lease or seeking possession on 1 July 2020 on the basis that the relevant period has ended and the rents due under the lease have been outstanding for 14, 21 or 28 days as applicable under the terms of the lease.

However, there will also be short term cashflow considerations for landlords to contend with in the circumstances. It can be a difficult balancing act for a landlord who may be willing to assist their tenants during these troubling times but who also needs to ensure that they can alleviate their own cashflow concerns and pay any outgoings and overheads.

If any form of rent holiday is agreed with a tenant, a landlord should ensure that what has been agreed is notified in writing to the tenant and that the language used makes it clear that the rent is not being waived but that the rent is being deferred until after the relevant period has come to an end.

The Act also does not stipulate how long a landlord should give a tenant to pay the rent shortfall (whether it be the ground rent, service charge, insurance rent and/or any other rent reserved under a lease) and if a tenant should have some form of grace period to allow them to get their business operating before a landlord can demand rent again. This is something that should be considered by both a landlord and a tenant and a reasonable compromise should be sought between the parties but this is not always possible.

A lease would not usually have a clause allowing it to be cancelled or broken if an unforeseen event such a Covid-19 were to occur (known as a force majeure clause) and in circumstances where a party needs to exit a lease in the relevant period but has no break right to do so, it is unclear if the doctrine of frustration will apply to a lease or not.

It is likely that after 30 June 2020, there will be action taken by landlords who are eager to recover rent for the period between 25 March 2020 and 30 June 2020 or recover possession of a property due to the non-payment of rent. This will mean that the wording of any correspondence and agreements will no doubt be examined in microscopic detail with litigation ensuing to recover rent arrears or possession of a property by landlords along with claims by tenants from relief from forfeiture where a landlord attempts to obtain possession.

At Bromleys we have the expertise and knowledge to assist you with all manner of commercial property related matters including property litigation and we want to assist any client, whether it be an existing client or a new client, as best as we can during the current difficulties and beyond.

Call our dedicated Corporate and Commercial helpline on 0161 694 4143 for assistance.