Commercial property lease

COVID-19 and commercial leases

Covid- 19 has created some significant issues for commercial landlords. Rachael Spalton at Longmores Solicitors gives some suggestions on how to resolve them.

My tenant has asked me to reduce the rent. Should I agree?

You’re under no obligation to agree to reduce the rent. A tenant’s requirement to pay rent continues, even if they cannot occupy due to the pandemic.

The Covid-19 crisis has seen the government introduce a voluntary Code of Practice for Commercial Property Relationships, which encourages landlords and tenants to work together to alleviate its impact. While the Code does not change the legal relationship between the landlord and tenant, temporary rent arrangements between them may be needed – such as rent holidays or reduced rent. Be aware that the Code applies until 24 June 2021.

If your tenant requests a rent reduction, they should be clear as to why they need It and also provide financial evidence. As a landlord, if you feel unable to agree concessions, make sure you explain why. However, if you do decide to reduce rent, you should document this in a side letter.

What do I need to consider when agreeing to a side letter?

The duration of the concession. If the rent concession includes other rents under the lease (such as insurance payments and service charge). And if there will be an impact on rent review.

Make sure you consider if any other consent is required:

  • If your property is mortgaged, you may need additional approval from the lender.
  • If there’s a superior landlord above you, check if their support is needed.

It may be worth getting legal advice on other options specific to your circumstances.

My tenant has stopped paying rent, can I deduct rent payments from their rent deposit?

If there is a rent deposit in place, you may deduct the outstanding payments, provided the document governing the deposit permits it. However, the Code suggests tenants do not need to top up the deposit until it is ‘reasonable and realistic’ for them to do so. And, if your tenant becomes insolvent, there may be restrictions on your ability to draw funds from the deposit.

Can I forfeit the lease for non-payment of rent?

In March 2020, the government passed the Coronavirus Act 2020. This prevented landlords from forfeiting commercial leases for non-payment of rent until 30 June 2020 but has now been extended until 31 December and will be reviewed thereafter. As this suspension applies to forfeiture for non-payment, you may be able to forfeit if other grounds are available. Landlords should also consider the risk of rental voids and business rates liability in deciding whether or not to attempt to forfeit the lease.

Can I recover costs I incur for deep cleaning via the service charge and for any additional Covid-19 related services?

A landlord’s liability for providing services and the tenant’s liability to pay for services under the lease continue during COVID-19. Most service charge provisions will include the recovery of cleaning costs and an obligation to clean common parts (including deep cleaning).
Landlords will also sometimes have the ability to provide and charge for additional services where it’s reasonable to do so. If you are unable to provide certain services or your tenant is in financial difficulties, discuss the situation and negotiate temporary service charge arrangements.

Written by

Rachael Spalton

Partner and Head of Commercial Property at Longmores Solicitors

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.

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