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How will coronavirus impact UK commercial landlords and tenants?

Faye Hyland
24/03/2020

Locations

United Kingdom

Our real estate legal experts answer common questions on how to manage disruption caused by the COVID-19 outbreak.


 
The commercial real estate sector is understandably concerned about the possible impact of the coronavirus (COVID-19) outbreak.

Property litigators in particular have been flooded with questions from clients anxious about how to deal with these unprecedented circumstances and prepare for adverse outcomes.

Below, we have collated some of the most common questions and offered some answers, based on our expertise in this area in line with up to date government guidance.

The situation is constantly changing, so the following reflects government guidance as of 24 March.
 
Q.          What steps should a landlord or tenant take in the event of a general quarantine or lockdown?

A.           Following the statement by the Prime Minister on 23 March 2020, a general quarantine or lockdown is government policy for non-essential businesses.

This stance is being kept under review and may change in the future.

Landlords and tenants are advised to consult legal professionals regarding the impact and process of closing commercial premises, from both a landlord and tenant's perspective, and the interplay with specific lease terms, such as rights of access and 'keep open' clauses. 

 
Q.          What steps should landlords and tenants take to prevent the spread of COVID-19 and notify the other party in the event of suspected or confirmed infection?

A.           Following the statement of the Prime Minister on 23 March, only essential businesses and commercial premises are permitted to remain open.

For these premises, landlords and tenants will need to work together to agree plans for notification, enhanced cleaning and interruptions in operations by keeping abreast of government and NHS guidelines.

Lawyers can advise clients on the specific obligations of landlords and tenants under a lease and, where additional measures are considered necessary, how best to communicate and agree any proposals with the other party.

It may also be wise to seek advice on any obligations which may apply under a party's loan or finance arrangements.

 
Q.          Can an existing lease be brought to an end by either a landlord or a tenant because of the impact of COVID-19; or, can a landlord or a tenant refuse to enter into a new one under an existing agreement for lease?

A.           Ending a lease, or refusing to enter into a new one, solely on the basis of an intervening event, could only arise in very exceptional circumstances.

As regards COVID-19, landlords and tenants should refer to the express terms of their leases/agreement for leases to ascertain whether the present circumstances are likely to be covered.

Where appropriate, landlords and tenants should seek professional advice on force majeure, frustration and contractual performance.

 
Q.          In what circumstances (related to COVID-19) will a tenant be entitled to withhold rent?

A.           Most leases will contain wording preventing a tenant from withholding, offsetting or deducting sums reserved as rents in a lease.

However, the way some leases are drafted may entitle a tenant to suspend payment of rent.
The government announced on 23 March that commercial tenants who cannot pay rent because of COVID-19 will be protected from eviction.

Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly, but the government has recognised that businesses struggling with cash flow due to coronavirus remain worried about eviction.

For this reason, measures included in the emergency Coronavirus Bill currently going through parliament, will mean no business can be forced out of their premises until at least 30 June 2020, even if they miss payment(s) of rent.

Landlords and tenants concerned about this should speak to lawyers about their legal rights and obligations, steps which can be taken to recover unpaid rent, and any practical measures parties to a lease may wish to consider to enable commercial tenants to continue trading.

 
Q.          To what extent can COVID-19 related costs can be recovered through service charge provisions in a lease?

A.           Some COVID-19 related costs may be recoverable, depending on the wording in a particular lease, and on any potential barriers or limits to recovery.

Lawyers can advise you in the interpretation of that wording.
 

Q.          What provisions should landlords and tenants consider inserting into new leases to deal with the impact of COVID-19?

A.           A number of new leases for both landlords and tenants have incorporated provisions relating to COVID-19 and pandemics generally.

Of particular relevance is where landlord or tenant works are to be performed as part of a new lease, which may be delayed for reasons relating to COVID-19.

Lawyers can help draft bespoke provisions which can be built into a new lease for the protection of either party.

 
Q.          What are the risks for landlords and tenants proceeding with a property transaction in the current circumstances?

 A.          With appropriate legal advice, businesses and individuals can still, and are continuing to, enter into property transactions.
We strongly recommended you seek advice on COVID-19 issues that may arise in the context of new transactions, such as:
  • Delays;
  • Availability of finance;
  • Landlord and tenant works; and
  • Exposure of premises, tenants and employees to COVID-19.
Although the current circumstances are unprecedented, Fieldfisher's expert real estate lawyers can provide the contractual protection clients need to proceed with property transactions.

If you have any questions or concerns about your landlord and tenant agreements in light of the coronavirus outbreak, Fieldfisher's real estate litigation team would be happy to discuss your specific circumstances with you.
 

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