A tenant cannot automatically bring their lease to end if they are unable to run their business or pay their rent due to the Covid-19 restrictions in place, unless there is a previously agreed break clause within the Lease.
This means that a number of tenants may be faced with a struggle to pay their rent to their Landlord, as they have little or no income/business during the restriction period.
This difficult situation may lead to a request from a tenant that a rent suspension period is allowed, or they are granted with another form of relief such as a rent free period or the ability to pay less or monthly.
Must Landlords honour a deduction?
Many modern commercial leases include a provision which provides that payment of rent is to be without any deduction or set off. The Landlord is therefore under no obligation to agree this. However, this may be something which many landlords are offering to tenants, whilst appreciating the difficult times everyone is facing at the moment.
The benefit for the Landlord in doing so hopefully means that the landlord and tenant relationship can remain and the tenant can remain at the property for the duration of the contractual term, providing rental certainty for the landlord.
Can the lease be suspended?
Whilst a rent suspension may be a good idea in some cases and as a Landlord may be something you offer to your tenant or agree to, it is important that this is documented correctly so that there can be no issues that arise in the future because of this. This will ensure that the deduction or suspension is controlled, and allows the Landlord to stipulate the length of time this is to be in place. It also ensures that any temporary concessions cannot become a permanent variation to the lease.
Documenting this will also offer protection to a tenant, so that a Landlord cannot claim any payment during this agreed time or claim a breach of lease or use their ability to forfeit a lease because of non-payment of rent, a provision which all leases will usually include.
Although the Government have offered some security not allowing a Landlord to forfeit any lease for non-payment of rent, this is only valid until 1 July 2020 at the moment, so a Landlord could still do this after this date, unless this is extended by the Government.
The change could be documented either by way of a deed of variation or a side letter. All terms should be agreed and stipulated in this document, such as the rent to be paid, if any, the period in which this is effective, how and when rent should be paid and whether this agreement could be terminated by either party.
It could also stipulate whether or not the landlord is entitled to recover any of the non-paid rent as backdated rent during the rest of the contractual term. This will offer certainty to both parties and ensure there can be no litigious argument at a later date
A final point
As a landlord, you will also need to consider your mortgage terms as to whether you need your mortgage company’s consent to offer any rent deduction or suspension.
At Swinburne Maddison, we can assist you whether you are a landlord or tenant, and whether this is initial advice or the preparation of documentation.
The Commercial Property team are working remotely and will be able to answer any questions or concerns you may have during this challenging and unprecedented time. We will be monitoring further developments and providing additional updates when possible.
If you require any assistance at all with a variation to a lease or any other query in relation to commercial leases or commercial property, whether you are a landlord or a tenant, please contact Victoria Walton, Partner and Head of the Commercial Property team, by email on email@example.com or telephone 0191 375 5065.