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Coronavirus - Commercial Leases - A Note For Tenants

on Monday, 23 March 2020.

In this unprecedented and ever-evolving situation, it is unfortunately inevitable that some businesses will struggle with lower turnovers and poor cash flow.

The purpose of this article is to give some guidance to commercial tenants who may be concerned about the impact of coronavirus on their ability to comply with their lease obligations.

Check the Terms of Your Lease

If you are concerned about your ability to pay rental and service charge payments as they fall due, your first action should be to review the terms of your lease.

Whilst leases generally only provide for rent to be suspended if the subject property is no longer fit for occupation (eg in the event of a fire or flood), you may find that you are entitled to a reduction in your service charge payments, if your landlord can no longer provide access or the usual services.

Asking For a Rent Concession

Landlords generally want to avoid having vacant units and, with the ongoing uncertainty, may be reluctant to take drastic action against tenants. In fact, as of 26 March, new measures introduced by the Coronavirus Act 2020 mean that landlords cannot forfeit commercial leases on the basis of non-payment of rent until at least 30 June 2020. They may therefore be willing to agree a rent concession, such as a reduction, suspension or payment plan.

We would always recommend that any agreement is documented fully and in writing, to avoid any uncertainty or arguments in the future. Issues to agree would include the duration of the concession, and whether the landlord can require the tenant to pay the balance at a future date.

Terminating Your Lease

If your landlord is unwilling to agree a rent concession and/or you wish to bring your lease to an end as early as possible, you may wish to consider the following:

Exercising a Break Option

You should check whether your lease contains an appropriate break clause. A break clause allows a landlord and/or tenant to terminate a lease early, usually by serving notice in advance of a specific date (known as the 'break date'). Some leases contain what is known as a 'rolling break', which entitle landlords/tenants to bring a lease to an end at any time on giving a specified period of notice.

Break clauses can vary significantly between leases, and so it is important that you obtain proper advice before attempting to exercise any break rights. Many break clauses contain a list of conditions that tenants need to comply with in order for the break to be validly exercised - again, these can vary between leases and you should obtain legal advice to ensure your compliance.

Negotiating a Surrender

Your landlord may be willing to agree to surrender your lease. This essentially means that both you and your landlord agree to bring the lease to an end. Whether or not your landlord is willing to agree this will likely depend on (a) its intentions for the property, and (b) its ability to re-let the property to another tenant in the current market conditions.

Bringing the Lease to an end by Serving Notice

If the contractual term of your lease has expired and you are holding over, you will have the right to bring your lease to an end by serving notice on your landlord. The required notice period will vary depending on the terms of your occupation.

The key message to take away from this article is that if you face financial difficulties as a result of coronavirus, you should talk to your landlord as early as possible and ask for their forbearance at this difficult time.

The above reflects guidance as at 30 March 2020. We will continue to update this as the situation develops. While we aim to release updates as quickly as possible, it is important that readers check the latest government advice for further updates.


If you require specialist legal advice or any further information in relation to your specific situation, please contact Ailish Foad in our Real Estate team on 020 7665 0820 or complete the form below.

 

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