Many commercial tenants were relieved by the extension of the restrictions on Landlords imposed by the Coronavirus Act 2020, particularly where those tenants are in arrears are as a result of the pandemic.
Although industries across the board have suffered, the tech industry, in particular, has been hit hard because of the industry’s relationship with China. China‘s productivity and exports fell significantly and this has inevitably had a knock on effect on all those business that trade with China. This will also have had an indirect effect on the ability of tech companies to meet their rental obligations.
Initially there were some landlords putting tenants, many of whom have seen their businesses all but destroyed as a result of Covid 19, under considerable pressure by using aggressive debt recovery tactic. This resulted in the government stepping in and imposing restrictions on landlords seeking aggressively to enforce demands for rent arrears from their tenants.
The government introduced restrictions on a landlord’s ability to pursue certain enforcement action against a tenant by temporarily banning the use of statutory demands and winding up petitions for those commercial tenants unable to pay their bills due to coronavirus. The ability for a landlord to forfeit the lease for non payment of rent has also been suspended and restrictions on the exercise of Commercial Rent Arrears Recovery (CRAR) were imposed. These measures, which have provided valuable breathing space for tenants, were both due to expire on 30th June, and then again on 30th September, but they have now been extended to, at least, 31st December.
The government also published a Code of Practice on 19th June for commercial properties, in which they state that the government “has always been clear that tenants who are able to pay their rent in full should continue to do so, whilst those businesses that cannot pay in full should communicate with their landlord and pay what they can. Landlords should also provide support to businesses if they too are able to do so.”
Unsurprisingly statistics published on 1st October in the publication Business Matters indicate that “only 22 per cent of rent for the nation’s shops, offices and warehouses has been collected for the final quarter.
Rents for the last three months of the year were billed on Tuesday. Retailers paid only 13 per cent of the rent they owe for the final quarter, according to analysis by Re-Leased, a commercial property management platform — the lowest collection rate seen since the start of the crisis.
Office tenants paid 32 per cent of rent owed, which was an improvement on the 22.8 per cent paid at the June quarter payday. Industrial tenants paid 18.3 per cent of rent, up from the 16.2 per cent received in June but lower than the 23 per cent in March.”
In addition, in the midst of the ongoing pandemic, there is an awakening among many businesses that employees are capable of doing work and being productive from home meaning that their current offices no longer meet their needs.
The re-imposition of lockdown in parts of UK serves as a stark reminder of the problems we still face and in the current climate of economic uncertainty landlords and tenants must realise that there needs to be give and take on both sides and that they should work together to reach agreement in respect of rent.
Communication is key
Tenants should be open with their landlords about the financial position and their ability to pay rent. If tenants are unable to pay rent then this should be communicated to landlords early on with reasons why they are unable to do so.
Tenants should consider whether they are able to exercise a break clause, though many are conditional on the tenant not being in arrears of the quarterly rent payments.
If all else fails a tenant can seek to agree to surrender the lease to the landlord, though many landlords may not accept a surrender of the lease and instead seek to claim against guarantors, if applicable.
Landlords in turn may wish to consider rent concessions which could include a deferred payment of the rent or even a ‘rent free’ period where there is no obligation on the tenant to pay rent for that period at a later date.
The parties may also agree that landlords can dip into any rent deposit that was paid at the start of the tenancy.
Landlords should be wary where the tenants appear to have abandoned the property without any communication. While the tenant will remain liable even if it has abandoned the premises, the landlord may not wish to leave its premises untenanted.
In these circumstances they may wish to exercise their rights under a break clause, if available. Alternatively, the option of forfeiture remains open for breaches other than arrears owed under the tenancy. If the lease has a ‘keep open’ clause or if there are any other lease breaches by the tenant the landlord can proceed to serve a notice under section 146 of the Law of Property Act 1925 before pursuing forfeiture on that basis.
The pandemic continues to wreak havoc in many sectors across the nation and with no end in sight it is now more important than ever that landlords and tenants work together to weather the storm so that when we all eventually return to ‘normal’ landlords still have a happy tenant in their premises and tenants are able to survive in the current climate and return to business as usual.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.