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Coronavirus – Commercial Leases

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].