We live in an interconnected world, where you can travel from England to Australia in just over 18.5 hrs! Before lockdown, Heathrow airport saw on average 1400 take-offs and landings per day. Post Corona Virus lockdown travel in and out of Heathrow is down 90% and the effect of the lockdown travel restrictions globally has been devastating to global and national businesses resulting in many going into administration or liquidation or having to adapt their businesses to survive.
Whilst many businesses have attempted to re-negotiate their commercial rents with their landlords, there is no guarantee negotiations will be successful and Section 82 of the Coronavirus Act 2020, only prevents landlords from exercising any right of re-entry or forfeiture until 30th June 2020 currently.
We could see a wave of businesses disappearing on our high streets in the months ahead, despite government efforts to protect commercial tenants. The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 prevents enforcement agents from taking control of goods at commercial premises unless at least 90 days of commercial rent is outstanding. This applies if the Enforcement Notice is served by the Enforcement Agent on the Tenant on or after 25th April 2020. Given that some commercial tenants may not have paid their quarterly rent on the 25th March 2020, the threat of rent arrears recovery by Enforcement Agents is very real.
At WBW Solicitors we believe prevention is better than cure and the above risks can be mitigated in new leases by incorporating a rent suspension clause taking in to account future pandemics such as Covid-19. Such a clause could suspend or reduce commercial rents during any lockdown period preventing a business from trading during normal hours. It could also extend to reducing or suspending service charge payments or insurance rent payments to the landlord during a lockdown. Currently rent suspension clauses usually only suspend the rent where the premises or a part of the building providing access to the premises has been damaged preventing occupation or access to use the premises for the permitted user under the commercial lease. This leaves many commercial tenants liable to pay their rents for premises they cannot use until lockdown eases or ends.
Landlords may potentially oppose a rent suspension clause in a new lease unless business interruption insurance going forward is available at competitive premiums to cover future lockdowns caused by pandemics, in which case it is likely as a compromise landlords will suspend the commercial rent during a pandemic whilst business interruption insurance is available and covers future rent losses for pandemics such as Covid-19.
We would expect a tenant could serve notice upon the Landlord to terminate the lease if the premises are still under lockdown after the business interruption insurance cover ends, but this is a negotiation point to be settled between the parties after taking legal advice from an experienced adviser.
Alternatively landlords may be willing to enter into Rent Concession or Rent Deferral letters simultaneously with the grant of a new lease or concerning an existing lease, to reduce or defer rent payments for a fixed period or until a lockdown period ends. These letters can cause problems and can be held to permanently alter a lease or be unenforceable unless drafted carefully. The advantages are that such letters are personal between the Landlord and the Tenant enabling the Landlord to charge full rent to future tenant’s whether or not there is a lockdown and avoid such letters being taken into account when calculating the new rent during a rent review, unlike where a pandemic rent suspension clause is incorporated into a lease that may be taken into account at rent review reducing the rent payable to the landlord. For the tenant at least, the tenant will be protected from paying rent during a pandemic for a building it cannot use. However the downside to this method is that depending upon the terms agreed, they may or not apply once the landlord or the tenant assigns their interest in the property, again that depends upon the wording of such letters, which should be carefully negotiated between the parties. Also any new tenant may need to re-negotiate new Rent Concession or Rent Deferral letters with the landlord before the lease is assigned, which can cause delays in future dealings with the lease, unlike where a pandemic rent suspension clause is incorporated into a lease and benefits future assignees.
There may be hope for tenants with existing leases if the wording expresses the rent to be suspended where the premises are “inaccessible” or words to that effect. If in any doubt we recommend you make an appointment with WBW Solicitors to review your lease and provide a report to you confirming whether or not your rent is payable during lockdown.
Given the potential hurdles that can arise by poorly drafted documentation in this area, it is important to instruct an experienced solicitor to review, advise and negotiate commercial leases.