Tier 3 and your commercial property

As Lancashire and Greater Manchester are now in Tier 3 of the new COVID-19 restrictions, Ashlea Thornton from Farleys Solicitors takes a look on the impact this may have on commercial property during this time.

Many bars and pubs are being forced to close, as establishments are no longer allowed to serve alcohol unless it is done so with a substantial meal. Whilst Government relief is expected for business owners, it is not yet known what form this will take and many will be left wondering how they will pay their rent.

The Coronavirus Act and relief options for business properties

Section 82 of the Coronavirus Act 2020 suspended the forfeiture of commercial leases for non-payment of rent until 31 December 2020 and it’s likely that this period will be extended further given the current circumstances. Tenants should however note that this is not a rent holiday as rents are not being formally suspended; they will still be due and once the moratorium period is finally lifted, landlords will be able to forfeit leases if rents have not been paid.

It’s also important to understand that the Coronavirus Act does not suspend a landlord’s right to forfeiture should a tenant become bankrupt or go into administration. This means that a landlord could in theory, seek to make their tenant bankrupt as a means to giving up the lease. Many may, however, see this as a waste of further resources, particularly in those instances where a tenant is genuinely unable to operate their business, and choose instead to either wait until the moratorium is lifted or until the business is able to operate again and agree with the tenant a repayment plan.

In addition, Section 82 of the Act only applies to commercial leases which are within the Landlord and Tenant Act 1954, and does not apply to leases of 6 months of less in duration or to licences to occupy and so any tenants who occupy premises outside of those parameters do not have the protections discussed above.

The Coronavirus Act has also established that a landlord is unable to enforce commercial rent arrears recovery (CRAR), which is a procedure whereby landlords can recover rents owed to them by taking control of their tenant’s goods and selling them) until 189 days of rent is outstanding. This was an increase on the previous 7 days. This protection for tenants has also been extended until the end of 2020, offering tenants further protection. Again, it should be noted that these protections are not extended to all tenants and those for whose lease has expired or occupy a mixed-use premises are not covered by them.

What other options are there for Landlords and Tenants?

Landlords and tenants may be able to use this period to agree to draw down rent due from any rent deposits which are held and agree that the usual top up times for the deposits be extended past the usual 10-day period.

If you are a tenant, review your lease to establish when your next break clause is. It is usual that a minimum of 6 months notice of a tenant’s intention to break a lease is required and you should therefore think ahead as to if this may, unfortunately, be the best option available to you.

Landlords also need to be mindful of this and the risk that your tenant serving a break notice may bring you – in the current climate it may be difficult to find a new tenant and market rents may be lower than they once were. Therefore, it may be prudent for you as a landlord to consider offering a rent reduction to tenants who are struggling.

Some commercial leases also carry a clause where should a tenant be leaving premises unoccupied or unused for a period of time, the landlord must be informed. Any tenant forced to close under the current restrictions should check to see if their lease has this clause as non-compliance could allow for the landlord to forfeit their lease.

Whether you are a landlord or tenant it’s important to understand what your options are and your legal position regarding commercial property in the current climate. Contact a member of our commercial property team today for a no obligation discussion on 0845 287 0939, email [email protected] or visit www.farleys.com for more information.