Coronavirus – Issues for tenants
Coronavirus is having and will continue to have a huge impact on the retail, leisure and hospitality sector. On Friday 20 March the government ordered the closure of cafes, pubs, bars and restaurants, these businesses are still able to operate as a takeaway only. Theatres, cinemas, gyms and leisure centres have also been ordered to close. On 23 March, all non-essential stores were forced to close, permitting only grocery stores, pharmacies and funeral homes to remain open.
Tenants are considering their options and with the March quarter day around the corner, are raising enquiries as to whether they can withhold the rent or terminate their leases.
Can I withhold payment of rent?
No – leases do not allow tenants to withhold payment of rent, regardless of the circumstances.
The rent must be paid on the usual rent payment dates, without deduction or set off. Failure to pay the rent is classed as a breach of the lease and would leave the tenant exposed to enforcement action by the landlord.
In normal circumstances, landlords could seek to forfeit the leases (the process whereby the landlord re-enters the premises, takes back possession and terminates the lease). However, in light of the pandemic, the UK government has announced a three month forfeiture moratorium. This means that landlords will not be able to forfeit leases during this period as a result of a tenant’s failure to pay the rent. The intention is to give tenants time to negotiate rent concessions with their landlords without the risk of the landlord terminating the lease and taking the premises back.
If the rent is still in arrears upon expiry of the moratorium then landlords will be able to claim forfeiture.
Most leases will allow a rent suspension in the event that the premises are unfit for occupation and use, upon the occurrence of an insured (or sometimes an uninsured) risk. It is unlikely that this will include pandemics or diseases such as COVID-19, however the lease should be checked in each case. In most cases, the lease will state that there must be physical damage to the premises rendering them inaccessible or incapable of use.
Can I terminate the lease?
The option to terminate the lease will be limited and will depend on the terms of each individual lease. Tenant break options may be exercised now (upon giving prior written notice to the landlord). The conditions for serving a valid break notice must be considered before the right to break is exercised. Full payment of rent is typically a condition for serving a valid break notice and this would include payment of rent for the whole quarter.
It is unlikely that a lease will contain a force majeure clause, which will permit the tenant to terminate the lease on notice. It could be argued that the lease should terminate by virtue of frustration but the threshold for that test is high and will be difficult to argue.
So, what can I do?
In short, you are not legally able to pass on Coronavirus losses to your landlord. However, the pandemic is affecting both landlords and tenants and landlords will want to support tenants during this difficult time to minimise the prospect of the Coronavirus forcing tenants into insolvency.
Tenants should check whether they hold a non-damage business interruption insurance policy which includes notifiable disease. It is not a commonly bought policy and cannot be purchased now, in light of the pandemic but if this policy is held, and subject to its terms, tenants may be able to recover some of their losses.
You should consider being transparent with your landlord and try to negotiate a rent concession or a change to the rent payment dates, during this period.