Sector: Property

Topic: Coronavirus

Coronavirus: Advice for Landlords

By Richard Kleiner

27 Apr 2020

The UK government has passed legislation to protect UK commercial and residential tenants that miss rent payments due to the impact of the coronavirus pandemic from eviction for at least three months.

With strong movement restrictions across the UK and the closure of thousands of businesses, landlords may struggle to maintain cash flow as their rental income is likely to be reduced. 

We have outlined our answers to some of the frequently asked questions from landlords experiencing issues because of the coronavirus crisis. Please note that this is for information purposes only. Specific legal advice should be sought before taking any action.

Can a tenant terminate their lease by arguing that it has been frustrated?
We believe it is unlikely that tenants will be able to argue this.

The bar for termination of a lease by 'frustration' is quite high: it applies where there may be events that are not specified in the lease, which may change the parties' obligations and bring the lease to an end. 

While the restrictions placed on the use of some premises as a direct result of the coronavirus pandemic might be considered such an event, it is unlikely that a temporary inability to occupy the premises would meet this test.

In the unlikely case that a tenant can argue termination by frustration, it is possible that any advanced payments of rent would be repayable.

An additional point to note is that coronavirus may lead to tenants being more likely to exercise their contractual breaks to terminate their lease early, provided any pre-agreed conditions are met. 

Can tenants claim a reduction in rent if they are unable to use the premises? 
It is unlikely that tenants will be able to claim a rent reduction in these circumstances, as most leases do not contain a ‘force majeure’ clause. A force majeure allows either party to suggest that the obligations in the lease are suspended due to an unforeseeable event.

However, you should check your contracts as this is a generalisation and some contracts may have a force majeure. 

Can tenants ask for a rent deferral?
Under current circumstances, most leases will dictate that the obligation to pay rent will be suspended, so tenants will have to repay any missed payments at a later date. 

However, many premises have been forced to close and turnover rents in retail leases will subsequently be significantly impacted. Therefore, a landlord may decide to defer, reduce or entirely suspend the rent for a period to avoid tenant insolvency.

Regarding acting in good faith if the tenant asks for variations to the lease and rent to reflect coronavirus, this is not necessarily required unless there is a specific provision in the lease, which would be unusual. However, there may be commercial or reputational reasons why a landlord would want to engage with the tenants in respect of any request, particularly where necessary to avoid tenant insolvency. 

Can tenants claim breaches of landlord covenants if I close a building? 
Some landlords may face claims for breaches of certain covenants, such as covenants for quiet enjoyment (i.e. the tenant has the right to live in the property without disturbance from the landlord), or not to derogate from grant (i.e. the landlord should not do anything that deprives the tenant from ‘enjoying’ the property). 

However, if a closure is required by law or in accordance with PHE or HPS advice, then this could provide a defence to any claim for breach of landlord obligations under the lease. 

The governments coronavirus movement restrictions mandate that only essential shops, such as supermarkets and pharmacies, should be open. Therefore, there is a strong defence against any such claims.

However, if closure goes beyond what is legally required or recommended by the guidance, then the landlord may be liable for tenants' losses.

Can a tenant refuse to pay rent if my building is closed? 
It is likely that refusing to pay rent is not enforceable, even if the tenant has a claim for breach of covenant.

If, as is common, the lease says that rent is payable without deduction or set off, the tenant should continue to pay the rent and then seek to recover damages for breach of covenant as a separate action. 

Please refer to the question above for further details on breaches of landlord covenants. 

Can a landlord enforce a ‘keep open’ clause? 
As the government has mandated that all non-essential shops remain closed, it is unlikely that any keep open covenant or covenant not to leave the building empty would be enforceable. 

Under usual circumstances, a ‘keep open’ clause, or a similar clause dictating that premises must not be left empty for a period which the closure exceeds, would be enforceable. 

Landlords should check whether leases provided for the tenants contain a clause to notify the landlord if the premises are left empty, as this may affect your insurance. 

If you are seeking advice on any of the topics mentioned and would like to get in touch, contact Richard Kleiner at rkleiner@geraldedelman.com

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