Covid-19 and the Commercial Property Sector

Key Questions being asked by Commercial Property Tenants

Covid 19 has had, and will continue to have, a massive impact in all areas of life in the UK. In recent weeks we have looked at the charity, hospitality and travel sectors and what they need as lockdown is eased and commercial life starts up again. In this article we look at the commercial property sector, and are grateful to Oonagh McKinney, Commercial Property Partner at Fretten’s Solicitors (based in Christchurch and Ringwood) for sharing  with us some of the areas her team have been contacted about, and what commercial property tenants should look out for over the coming months.

The Coronavirus Act 2020 and the Forfeiture of Leases

The Coronavirus Act 2020 received Royal Assent on 25^th March 2020. It includes many provisions that cover every aspect of life within the UK, including the forfeiture of leases, which was suspended on 26^th March to protect the interests of tenants. This is considered a vital move as many businesses’ income and cash flow has been significantly disrupted. Here we look at what this suspension really means and consider what might happen when the suspension ends.

The key features of this piece of legislation are:

• It provides a moratorium on forfeiture of commercial leases for non-payment of rent. The moratorium applies as from 26 March, which has now been extended until 30 September 2020. Whilst the moratorium is in place, a landlord will not be able to evict a tenant for non-payment of rent. it does not stop the rent still being payable and leaves the tenant open to contractual or other enforcement.
• Failure by a tenant to pay rent during the moratorium period is removed by the provisions of the Coronavirus Act 2020 as a ground of objection by a landlord to a new tenancy under the Landlord and Tenant Act 1954.
• The legislation does not apply to a short lease (i.e. a lease for less than six months). Landlords whose tenant is on a lease of 6 months or less can therefore still forfeit their tenant’s lease.
• In addition to the moratorium on forfeiture, the Act also prevents landlords (until at least 30 September 2020) from using Commercial Rent Arrears Recovery (CRAR) unless they are owed 189 days or more of unpaid rent.

Of particular interest, of course, is what happens when the moratorium lapses on 30^th September 2020? The answer is that a landlord will be able to claim for forfeiture for both payments that became due during the moratorium period, and for any becoming due but unpaid after it ends.

What does the Moratorium Mean for Businesses?

Cashflow is at the heart of everything right now. The moratorium on the forfeiture of commercial leases for the non-payment of rent will have provided some much-needed breathing space for businesses looking to preserve their cash flow. However, tenants need to be aware that once the moratorium ends, the right to forfeit will arise again, unless the moratorium period is extended.  Where a business tenant has withheld payment of the March and/or June 2020 quarter’s rent without its landlord’s consent, the business would therefore be well advised to open a dialogue with the landlord before the expiry of the moratorium period in September 2020.

Other questions that the Commercial Property Team at Fretten’s are being asked include:

• The payment of business rates on an empty property,
• The exercise of break clauses and/or rent suspension, and
• Whether a claim under an insurance policy might be possible

It is certain that many businesses will need to seek professional advice regarding their commercial leases as the end of the moratorium approaches.

As Insolvency Practitioners, we Specialise in Restructuring and Recovery

The survival and recovery of businesses as the lockdown eases will require input and help from several sources, including the national Government and key support available locally. This includes, of course, legal advice in the critical area of commercial property leases, and we are always happy to recommend our clients talk to experts such as Oonagh McKinney at Fretten’s Solicitors.

Our team of insolvency practitioners is also there to help you make the decisions you need, especially if restructuring is needed. Amongst other things, we can help you with:

• Understanding and working out exactly what your committed cash flow is.
• Helping you talk to your Lenders and Asset Finance companies about repayment holidays.
• Negotiating with HMRC if you owe them money because at some stage they will want to be paid what they are owed.
• Helping you talk to your landlords about a rent holiday. It is not in your Landlords’ interests to have empty premises. The indications are that Business Rates, where still applicable, will not be pursued aggressively.
• Make sure you know what your duties are if you are a company director. It is vital that these statutory duties are carried out correctly especially when a company is in financial difficulties.

We are here to help you understand the options for your business as lockdown continues to ease and key decision need to be taken. We aim to take the emotion and stress away as much as possible and act to ensure that any decision is as pain free as possible.

Contact us or call our insolvency practitioners on 01202 551193 for a Free initial consultation.