covid-part-1

Commercial leases in exceptional circumstances: the pandemic (Part one)

Commercial leases in exceptional circumstances: the pandemic (Part one)

The COVID-19 pandemic and the lockdown it prompted brought the majority of commercial life in the UK grinding to a halt on 23rd March.

While much of the media coverage centred upon measures such as the Coronavirus Job Retention Scheme and other direct interventions, there were also attempts to deal with the disaster unfolding along the High Street and across the commercial lettings sector.

Put simply, as all non-essential shops were forced to close their doors, income dried up completely and with it the rental stream which commercial landlords rely upon.

While much of this was hidden, with individual landlords and tenants expected to negotiate new arrangements that would keep the business afloat until things improved, signs did gradually emerge of the impact the lockdown would eventually have.

Landlords feel the heat on commercial leases

In early April, property owner Criterion Capital warned shop and restaurant tenants in London’s Trocadero Centre, if they didn’t pay their rent they would be taken to court. Over the same period, commercial landlords received only an estimated 33% of their £2.5 billion quarterly retail rent.

It was worse for some, with Intu owner of retail spaces across the UK, including large indoor shopping centres, received only 29% of the rent due, compared to 77% at the same time last year and collapsed into administration 3 months later.

The government attempted to cope with this slowly unfolding disaster through a series of measures which were mostly designed to protect tenants from landlords acting too quickly in these exceptional circumstances.

These measures were introduced in the Coronavirus Act 2020, and included a moratorium on forfeiture for non-payment of rent, which has been extended to at least 30th September. In addition to the measures themselves, the government published a new Code of Practice for Commercial Property Relationships.

Although the code has no impact on the law governing the relationship between tenants and landlords, or the obligations and rights set out in a lease, it sets out some general principles which tenants and landlords should adhere to when negotiating with each other.

The overall aim of the Code is to encourage flexibility, transparency and good faith, with both parties acting in partnership to achieve a negotiated outcome.

It’s a time for calm heads in lease discussions

In simple terms, the Code states that tenants should be transparent when asking a landlord for concessions, and should be willing to provide documentation as evidence of the difficulties they are experiencing.

At the same time, landlords are encouraged to accept concessions where possible, having weighed up issues such as the previous track record of the tenant, the impact of any enforced closure, the cost of making the premises safe upon re-opening and access to any government support.

If the landlord feels unable to agree any concessions they should be willing to set out clearly why they have reached this decision.

All of this represents the kind of approach that sensible tenants and landlords would have been adopting from the start of the crisis, but behaving in a calm and sensible manner is often easier said than done, particularly in the grip of a once in a generation crisis.

Whether tenant or landlord, if you’re facing a challenge with your lease in these exceptional circumstances and would like to discuss your options with an experienced specialist real estate lawyer, please speak to Karen Mason on +44 (0)20 7464 4081 or email karen.mason@newmanor.com