Legal Matters Q&A: Commercial Leases
In these difficult times, many tenants will be considering ways of being released from their obligations under the lease or asking their landlords for a form of rent concession. Rachael Spalton looks at issues and concerns facing commercial landlords caused by Covid-19.
My Tenant has asked me to reduce the rent. Should I agree?
A Landlord is under no obligation to agree to a reduced rent. Even if the Tenant cannot occupy due to the pandemic their obligation to pay rent continues. The Government introduced a voluntary Code of Practice for Commercial Property Relationships during the Covid-19 Pandemic which encourages landlords and tenants to work together to alleviate its impact. The Code will apply until 24 June 2021. The Code does not change the legal relationship between the landlord and tenant but it may be in their best interests to agree temporary rent arrangements such as rent holidays or reduced rent. Tenants requesting rent reductions should be clear as to why it is needed and provide financial information. Landlords should consider requests and provide explanations if they feel unable to agree concessions. If you do agree to reduced rent, it should be documented in a side letter.
What do I need to consider when agreeing a side letter?
Below are some points to consider plus it is worth getting legal advice on other options specific to your circumstances.
- The duration of the concession.
- Will the rent concession include other rents under the lease such as insurance payments and service charge.
- Any impact on rent review.
- Mortgage – if your property is mortgaged, the lender’s consent may be required.
- Superior Landlord – if there is a landlord above you, its consent may be required.
My Tenant has stopped paying rent, can I deduct rent payments from a rent deposit?
If a rent deposit is in place, you may deduct the outstanding payments from the deposit provided that the document governing the deposit permits. The Code suggests that landlords do not require tenants to top up the deposit until it is “reasonable and realistic” to do so. If the Tenant becomes insolvent there may be restrictions upon your ability to draw funds from the deposit.
Can I forfeit the lease for non-payment of rent?
The UK government passed the Coronavirus Act 2020 in March. The Act says that landlords cannot forfeit commercial leases for non-payment of rent until 30 September 2020. This suspension applies to forfeiture for non-payment of rent so you may be able to forfeit if other grounds are available. However, the Act also introduced an automatic stay of court possession proceedings so you are unlikely to be able to regain possession quickly. 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 that I incur for deep cleaning and any additional Covid-19 related services via the service charge?
The landlord’s liability to provide services and the tenant’s liability to pay for services under the lease continues during Covid -19. Most service charge provisions will include the recovery of cleaning costs and an obligation to clean common parts, which will include deep cleaning costs. Also, landlords will sometimes have the ability to provide and charge for additional services where it is reasonable to do so which may cover any additional services provided. If landlords are unable to provide certain services or their Tenant is in financial difficulty the parties should discuss the situation and negotiate temporary service charge arrangements.
If you need advice on Commercial Leases, or any other Commercial Property matter, please contact Rachael Spalton, Partner and Head of Commercial Property
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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