Coronavirus and commercial leases – what landlords and tenants need to know

Can tenants withhold rent or end a lease prematurely?

A common question is whether tenants can refuse to pay rent, pay less rent or terminate the lease before the expiry date.

Firstly, it is important to review the terms of the lease. The relevant provisions to consider include:

  1. Any break clause that may enable the tenant to terminate the lease early;
  2. Any force majeure clause (although these are rarely found in commercial leases and there is no common law right to terminate for force majeure); and
  3. Any turnover rent provisions that are dependent upon the income generated from the premises.

Most commercial leases will provide for rent to be payable without deduction or set off. In those circumstances a tenant is unlikely to be able to withhold payment of rent for Coronavirus-related reasons unless any specific provision in the lease enables it do so, or unless it reaches an agreement with the landlord.

Rent suspension clauses generally only apply where premises have been damaged or destroyed. Tenants may therefore struggle to argue for a rent suspension in reliance on such provisions.

Tenants may look to the common law doctrine of frustration where the lease provides no express option for early termination. To terminate a lease by frustration, a party has to prove that there is some form of illegality or failure of common purpose that renders performance of the lease/contract impossible or so radically different from the parties’ expectations that termination is justified. The bar for a successful frustration claim is high.

 

Can a Landlord forfeit the lease and evict the tenant for non-payment of rent?

The UK government announced on 23 March 2020 that commercial landlords are to be precluded from forfeiting commercial leases and evicting the tenant for non-payment of rent. This measure has been extended from 30 June 2020 and will remain in place until 30 September 2020.

 

Who will be liable to provide/pay for additional services?

The starting point is that landlords remain liable to provide, and tenants remain liable to pay for, services in accordance with the express service charge provisions in the lease.

The ability of a landlord to recover the costs of the enhanced cleaning regimes from tenants will depend on the terms of the lease. Most service charge provisions include the recovery of cleaning costs and we would anticipate that such costs would be likely to be seen by the courts as reasonably incurred subject to any cap that may apply. Alternatively, a landlord might be able to rely on any ‘catch all’ provision regarding costs associated with good estate management.

 

Whether you are a landlord or tenant, it is important to understand your legal obligations and commitments; to act responsibly and not to assume that you are or will be automatically released from your legal obligations under a lease.

 

For further information, please contact our Commercial team at MBH Solicitors:
http://www.wigansolicitors.com Tel: 01942 206060 Address: 26 Bridgeman Terrace, Wigan WN1 1TD.

 

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