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. The situation is constantly changing, so the following reflects government guidance as of 24 March. Check on the government website for updates.
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.
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.
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.
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.