Over recent days, we have seen a surge in enquiries from businessowners worried about the impact of Coronavirus on their business. A typical question we have been asked is: what happens if we cannot fulfil our contracts? Can we be sued?

The answer may lie in the agreements themselves which should be reviewed early and carefully. Some practical options may include varying terms or considering whether to terminate, where possible. If neither option is available, but the contract is time critical, think about:

What does the “force majeure” clause say?

Many agreements have clauses relating to “force majeure” which explain what happens when something prevents a party performing its obligations. Such clauses cannot be implied into contracts, and must be expressly included.

Where a force majeure clause is widely drafted (even if it doesn’t relate to pandemics or diseases but includes any act or thing outside the control of the party affected), a spread of Coronavirus may be a force majeure event and may release a party from liability. However, a badly drafted force majeure clause (which relates only to “Act of God” or just talks about a ‘force majeure event’) may be insufficient.

But, the fact that a force majeure clause may cover Coronavirus isn’t enough on its own. The party seeking to rely on it must demonstrate that they can’t perform the contract because of circumstances beyond their control. They also need to show that there were no reasonable steps that were available to avoid or mitigate the event or its consequences.

Has the contract been frustrated?

If the Coronavirus pandemic causes performance of a contract to be commercially impossible or where the outbreak causes the fulfilment of the contract to be something very different to what was agreed, it may be that the contract will be frustrated. If the contract is frustrated, the parties may no longer be bound to perform their obligations.

Anyone worried and looking for advice on their situation should consider taking legal advice from experienced commercial lawyers.  If you would like us to consider your situation, and advise on mitigating your risk, please contact our litigation director – Llyr Davies, on 01792 776769.

In what are unprecedented and uncertain times for us all, the government has included in the Coronavirus Act 2020, which received Royal Assent on 25 March 2020, a provision that offers some relief to commercial tenants of commercial leases in England, Wales and Northern Ireland unable to pay their rent during these difficult times. 

Many tenants may find themselves unable to pay their rent as a result of having to cease trading due to the Covoid-19 crisis.  Most commercial leases contain a provision allowing a landlord to forfeit a lease for non-payment of rent if rent has not been paid for a period of 14 or 21 days after falling due. As a result, tenants could find themselves at significant risk of losing their tenancies as a result of circumstances outside their control.

To help businesses, Section 82 of the Coronavirus Act suspends landlords right to forfeit for non-payment of rent between 26 March 2020 and 30 June 2020 although this period may be extended by further legislation if necessary.  Accordingly, commercial tenants will be protected from eviction during this period.  This is not a rental holiday however and tenants will remain liable for the rent that falls due under the terms of the Lease. In essence, this offers tenants some “breathing space” if a business is in difficulty as a result of the current crisis and where it affects their ability to pay their rent.

A landlord cannot either pursue forfeiture proceedings against a tenant who has accrued significant arrears prior to the Covoid-19 crisis during the relevant period.  If forfeiture proceedings have been issued prior to the commencement of the relevant period, it would appear that they can be progressed by the Court, however Section 82 provides that in those proceedings, if the Court decides to make an Order for Possession, that Order cannot take effect on a date within the relevant period i.e. before 30 June 2020, or such extended date.

Although this provision offers relief and assistance to tenants it is not a complete answer for businesses struggling with cash-flow.  One question that landlords will want answered is this- if a COVID-19 defence is raised in proceedings, how can it be established that a tenant could not pay the rent due to the effect of the virus?  We foresee the Section 82 provision being raised by both tenants and landlords in future litigation once this crisis has ended. We will continue to monitor the position and are available to offer guidance to both commercial landlords and tenants.

Should you require any advice on your situation you can speak to our Property Litigation Director – Jason Williams, on 01792 776794 or at [email protected]

In light of the current economic climate, we recognise that business requirements may be affected and steps may need to be taken to reduce employee levels to reflect the loss of business.  This advice and guidance has been prepared to assist you in dealing with issues that the economic downturn may bring.

Lay-offs and short-time working are frequently used by employers as a useful way of handling temporary work shortages and adverse trading conditions.

Click here to read the guidance.

On Saturday 28 March 2020 UK Business Secretary Alok Sharma announced temporary changes to the insolvency rules to assist businesses that were facing difficulty in paying their debts as a consequence of the impact of coronavirus.

The primary change that will assist Companies and their Directors is the proposed suspension of the wrongful trading rule. This is intended to allow Directors to pay employees and creditors even in circumstances where the Directors have concerns that the Company might become insolvent.  The wrongful trading rule, introduced by the Insolvency Act 1986, makes it an offence for Directors to continue to trade when they know that liquidation is inevitable but this will be temporarily suspended under the proposed emergency legislation.

A further development was the announcement that businesses undergoing a restructuring will be granted a temporary moratorium during which creditors will be prohibited from appointing administrators, with Mr Sharma saying on behalf of the government that the “overriding objective is to help UK companies which need to undergo a financial rescue or restructuring process to keep trading”.

These developments have been welcomed by the British Chamber of Commerce, who commented  “Companies that were viable before the outbreak must be supported to ensure they can help power the recovery when the immediate crisis is over. Cashflow remains an urgent concern for many businesses, so it’s vital that government support packages reach businesses and people on the ground as soon as possible.”

Legislation has not yet been passed in the above respect so the full details are yet to be published, but will be at the earliest opportunity, and the changes will retrospectively apply from the beginning of March 2020.

It is important to note that the changes are limited to the above, and the other “checks and balances” that exist to ensure Directors’ comply with their duties will remain. If you are a Director, and you have any uncertainty as to what will or will not be permitted during these unusual circumstances we are happy to advise on your situation. Please contact our litigation director – Llyr Davies, on 01792 776769 or at [email protected]

The government has introduced measures to support business tenants adversely affected by coronavirus to prevent landlords from forfeiting leases for rent arrears thereby forcing a tenant to vacate its premises. The protection will last until 30 June 2020 and applies to non-payment of annual rent, service charge, insurance and any other payments due under the lease.

Tenants will continue to be liable for payments due pursuant to the lease during this period. After 30 June 2020, landlords will be entitled to forfeit leases for any unpaid sums including sums owed prior to 30 June 2020. There are also other options available for landlords to recover sums owed such as looking to guarantors or utilising rent deposits. Landlords can also charge interest on unpaid sums. 

Therefore, it is important that tenants take steps to ensure that by 30 June 2020, they can pay not only any outstanding quarterly rent payment which was due on 25 March, but also the next quarterly rent payment due on 24 June. Over the coming months, both landlords and tenants will need to work sensibly together to maintain a good relationship and to agree new flexible payment terms to assist businesses who are struggling with their cashflow. Such payment terms could include monthly rental payments, rent deferrals, rent reductions and rent-free periods. If the rent is to be deferred, consideration should be given to whether the deferred payment is to be repaid in instalments or in one payment, whether interest is to be paid on the deferred sum and at what rate. It is important that these new payment terms are documented correctly to avoid any costly disputes in the future.

In these uncertain times, tenants may consider exercising a break clause contained in the lease which would allow a tenant to terminate the lease early. Care should be taken to ensure that the break clause is exercised correctly and that any conditions attached to the right to break are strictly performed.

For any further information please contact Carys Wilson on 01267 493132 or at [email protected].

• The Coronavirus Job Retention Scheme (CJRS), remains available to businesses as of 1 November and will be open until December.

• The Government will pay 80% of wages up to a cap of £2,500.

• Flexible furloughing is allowed as well as full-time furloughing.

• The Job Support Scheme, which was scheduled to come into effect on 1 November, has been postponed until the CJRS ends.

• Neither the employer nor the employee needs to have previously used the CJRS.

• The scheme is available in respect of employees who were on the employer’s PAYE payroll by 23:59 on 30 October 2020.

• Employers need to report and claim for a minimum period of seven consecutive calendar days.

• Employers will pay employer NICs and pension contributions and should continue to pay the employee for hours worked in the normal way.

• The Government states that there will be no gap in eligibility for support between the previously announced end-date of CJRS and this extension.

For more information please contact the Employment Team on [email protected]