XYZ Law Solicitors

Coronavirus: Advice for Residential and Commercial Tenants

UK residential and commercial tenants who fail to make rent payments due to the impact of the coronavirus pandemic must be protected from eviction for at least three months.

The necessary legislation for England, Wales and Northern Ireland is included in the Coronavirus Act. In Scotland the necessary legislation is included in the Coronavirus Act (Scotland).  

As additional restrictions on travel and businesses are announced by the government in an attempt to control the spread of the coronavirus. Homeowners may find it difficult to cope with the impact on their buildings and rental income. Simply due the negative financial impact that the coronavirus is causing for many working individuals. Potential issues for commercial property owners described below:

“It is advised that specific legal advice should be sought before any action is taken” 

Can my tenant terminate their lease arguing that it has been frustrated?

It is unlikely that a tenant will be able to argue that the lease has been frustrated.

The limit on the termination of a lease by “frustration” is high: it applies when supervening events not provided for in the lease modify what must be done for the parties and terminate the lease. Although restrictions on the use of certain premises due to the coronavirus pandemic can be treated as a supervening event, a temporary inability to occupy the premises is unlikely to pass this test.  

However, the terms of the lease and the duration of the interruption to occupancy may be relevant.

When the tenant has a contractual break, the pandemic can make it more likely that the tenant will exercise that breach.

Can my tenant claim a rent reduction if they can’t use the premises?

Probably not. Very few leases contain a “force majeure” clause that could allow either party to say that the lease obligations are suspended due to Covid-19.

The bar for termination of a lease by “frustration” is high: it applies when supervening events  not provided for in the lease significantly modify the parties obligations and terminate the lease. Temporary inability to occupy the premises is unlikely to meet this test.
In most leases, the obligation to pay the rent is only suspended, or the amount of the rent reduced, when there has been “damage” or “destruction” of the premises by an insured risk or, in certain cases , an uninsured risk. Covid-19 itself does not cause physical damage or destruction of premises, so these provisions are unlikely to be engaged.

Turnover rents in retail leases will be strongly impacted where the premises are forced to close.

As a landlord, you can decide to postpone, reduce, or completely suspend the rent for a period to avoid tenant insolvency. Any such decision should be documented very carefully.  

If a lease was frustrated, as above, it is possible that any prepayment of rent will be refundable. 

Do I still have to provide services to my tenants?

As above, very few leases contain a force majeure clause that could allow the lessor to suspend its obligation to provide services.

However, check the lease to see if the obligation to provide the services contains any exclusions, for example with respect to matters beyond the landlord’s control, or if the obligation is only to make reasonable endeavours to provide the services. . In the latter case, if the coronavirus makes it impossible to provide the services using reasonable efforts – for example, due to illness of the staff or the contractor – you should not be liable for any failure to provide the services.

The provision of services should take into account restrictions and social distancing requirements under the Coronavirus Act 2020 and advice Public Health England (PHE) and Health Protection Scotland (HPS).These guidelines are regularly reviewed and updated.        

Do I have to provide a deep cleaning or other additional services?

It will depend on the terms of the lease. The obligation to clean and keep safe the common areas of the premises may well cover a deep clean. It would be unusual for there to be any obligation on a landlord to clean demised premises leased to individual tenants as opposed to the common parts, or for there to be any right of access to enable the landlord to do so.

However, it may not be practical to thoroughly clean the common areas without also cleaning the demised areas. You must also comply with your obligations under UK health and safety law , which requires landlords to do everything reasonably possible to ensure the health and safety of their employees and to ensure that people working or visiting a building should not be subject to risks to their health. The extent to which the owner has control of the premises. To the extent that you are not in control, your tenants must also comply with their own health and safety obligations.     

You should keep up to date with relevant government guidelines on measures related to Covid-19 in the workplace.

If I provide additional services, can I recover the charges from my tenant?

Again, this will depend on the terms of the lease. Owners often have the right to provide and charge for additional services – such as good estate management or other reasonable reasons – and this can extend to deep cleaning or other protective measures.

Where the lease provides for the recovery of costs incurred for the provision of services which the landlord considers has become customary to provide similar buildings, or when the improved cleaning follows government recommendations, then it should be possible for the landlord to recover the additional cost.

Can I close the building?

Some premises are required by law to be closed to members of the public. Under the Health Protection (Coronavirus, Restrictions) Regulation 2020 (England) and corresponding regulations for Wales, Scotland and Northern Ireland, these include:  
premises used for the consumption of food and drink, although they may remain open to provide take-out services only ;  
certain types of recreation premises, which in fact include most types of recreation premises; and
non-essential business premises specified.
The closure of the building may mean that you are faced with claims from tenants for violation of the landlord’s commitments, in particular the commitments of quiet enjoyment and not to waive the grant.
If the closure is required by law or in accordance with the advice of PHE or HPS, this could constitute a defence against any claim for violation of the landlord’s obligations under the lease. If the closure goes beyond what is legally required or recommended by guidelines, the landlord may be liable for tenant losses due to breach of the agreement.  
Closure, whether or not conforming to PHE or HPS guidelines or required by law, will generally not result in suspension of rent or termination rights under the insurance provisions that become applicable unless the premises are suffer physical damage, although the drafting of the lease and the insurance policy should be checked. Again, when the closure goes beyond what is legally required or recommended in the PHE or HPS guidelines, the tenant may have a breach of contract claim.    
The Landlord will have health and safety obligations towards one of his own employees working in the building.

Can my tenant refuse to pay the rent if I close the building?

Probably not. Even if the tenant has a claim for breach of contract, if, as is common practice, the lease says that rent is payable without deduction or set-off, they must continue to pay the rent and then seek to recover damages for breach of the contract as a separate action.
Lease suspension provisions are unlikely to apply, but the wording of the lease should be checked.
Where there is no legal obligation to close the building, consulting with the tenant in the event of a potential closure can help minimize the risk of litigation in the future.

Can my tenant close their premises?

When the health protection regulations in force require closure, the tenant must close the premises to members of the public. This does not mean that the premises cannot be used for aspects of the tenant’s business that do not involve public access to the premises, such as online order processing.

Otherwise, the tenant can choose to close his premises unless the lease contains an “open custody” clause or an imposing clause not to leave the premises empty for a period exceeding the duration of the closure. Courts are reluctant in some cases to enforce bail clauses by requiring tenants to stay open, but damages can still be awarded for default. If the closure is required by law or in accordance with PHE or HPS guidelines, it is unlikely that a non-compliance clause or not leaving the building empty will be enforceable. 

You should check to see if the leases provide for the tenants to notify the landlord if the premises are left empty, as this may affect your insurance. It is a good idea to communicate with tenants when possible about their intentions, so that you can notify insurers when buildings are empty.

What happens where the government has forced the closure of premises?

Without specific legislation, this does not change the obligations of the parties under the lease. However, the obligation to comply with the law can remove the right of either party to perform any obligation that has been breached.

Government intervention can facilitate tenants’ demand for their business interruption insurance.

Can I change the opening hours of the premises?

It depends entirely on the terms of the lease.

If the lease contains a tenant’s commitment to comply with reasonable regulations that the landlord makes from time to time, a by-law requiring tenants to attend directives from PHE or HPS would be reasonable.

Do I act in good faith if the tenant requests changes to the lease and rent to reflect the coronavirus?

Not unless there is a specific provision in the lease, which would be inhabited. However, there may be business or reputational reasons that you would want to engage with tenants to respond to any inquiries, particularly when necessary to avoid tenant insolvency.

Do I still have the same remedies against the tenant for breach of obligations that remain unchanged?

Significant changes have been made, or are being made, to homeowners’ remedies during the Covid-19 pandemic. The following changes have been made to a landlord’s ability to terminate a lease and obtain possession of the premises.

Confiscation

Sections 82 and 83 of the Coronavirus Act imposed a three-month moratorium on the ability of landlords to waive leases of commercial property for non-payment of rent in England, Wales and Northern Ireland, respectively. This period was extended until December 31, 2020 under the 2020 Business Tenancies (Forfeiture Protection: Relevant Period) (Coronavirus) (England) Regulation 2020 (No.2), the 2020 Business Tenancies (extension of protection against confiscation etc.) (Wales)) (Coronavirus) (No.2) and the Corporate Leases (Coronavirus) Regulation 2020 (Restriction on Forfeiture: relevant period) (Northern Ireland) (No.2) respectively, having been extended until September 30, 2020.  

The relevant provisions of the coronavirus law apply to the vast majority of commercial leases, but not to most leases of less than six months. They prevent landlords from taking any action for forfeiture for non-payment of rents or other sums, including service charges and insurance rent, from March 26 to December 31, 2020. This period can be further extended. The law provides that in any pending proceedings commenced before March 26, there can be no order of possession before December 31.   

Despite Articles 82 and 83, confiscation by peaceful reinstatement would still be possible for a landlord for breaches unrelated to non-payment of rent or other sums due.

Residential rental

Section 81 of the Act provides similar protections against eviction – by extension of notice periods – for tenants of many types of residential property rentals in England and Wales, including insured leases and insured. The notice period required by landlords to terminate many residential rental agreements in Northern Ireland has also been extended under the Private Plots (Coronavirus Amendments) Act 2020 (Northern Ireland).

Possession procedure

A new practice guideline under the Rules of Civil Procedure (PD 51Z) issued on March 26 and amended on April 17, 2020 provided for a stay of all possession proceedings in England and Wales for 90 days from March 27 to 25 June 2020. This period was extended until 23 August 2020 by an amendment to the Rules of Civil Procedure themselves under under the Civil Procedure (Amendment No. 2) (Coronavirus) Rules 2020  ; and was extended until September 20, 2020 by a new amendment to the Rules of Civil Procedure under the Rules of under the Civil Procedure (Amendment No. 2) (Coronavirus) Rules 2020

The stay did not apply to trespassing possession proceedings against “unknown persons” or applications for interim possession orders against trespassers, and does not preclude the parties from agreeing on guidelines for handling the case. 

Practice Direction 55C (as amended following the further extension of the stay) provides for the resumption of possession proceedings now that the stay has expired. If an owner has a claim that was issued before August 3, 2020, the owner must serve a “ reactivation notice ” in order for the suspended claim to be listed or relisted. If there is already a trial date, the landlord must serve the notice of reactivation no later than 42 days before the scheduled hearing date, otherwise the trial date will be cancelled. There is no standard form for a reactivation notice, but it must be in writing and contain certain prescribed information. If no reactivation notice has been served before January 29, 2021, the claim will be automatically suspended.       

The Practice Direction also states that the usual provision that the initial hearing for possession claims should take place within eight weeks of issuance of the claim will not apply for the period between September 20, 2020 and on March 28, 2021, which requires that there will be some delay in their progress. proceedings while the courts deal with the backlog of suspended applications. The detailed provisions of the practice instruction should be referred to when the procedures are reactivated. 

Remedies in Scotland

In Scotland, a landlord can only terminate or ‘irritate’ a lease after giving the tenant time to remedy the breach. The Coronavirus Act (Scotland) extends the 14-week deadline for non-payment of rent, thus declaring a blockage for a landlord in the event of termination during this period. Previously, the landlord only had to give 14 days notice before ending the lease. The period of 14 weeks may be extended by the Scottish Government under Coronavirus (Scotland) Act. There is no statutory irritation relief in Scotland so if the tenant does not pay the rental arrears within the 14 week period the landlord will have the right to issue a notice of termination of the lease if he wishes it.             

Do I have to stop charging rent once the arrears have fallen due to preserving my waiver right at the end of the moratorium?

Coronavirus law protects landlords in England, Wales and Northern Ireland from inadvertently waiving the right of waiver for non-payment of rent or other charges during the moratorium period. So you can continue to charge rent and process consent requests, etc. under the lease without waiving the right of forfeiture for non-payment of arrears.  

However, if you wish to forfeit another breach of the lease, the usual rules apply and you must cease charging rent or taking any other measure compatible with the continuation of the lease. 

In Scotland, no change has been attributed to the procedure for non-financial irritation in the Coronavirus (Scotland) Act. Acceptance of the rent after the lease has been irritated can be interpreted as a waiver of the irritation in certain circumstances. Landlords should exercise caution after an irritation notice has been served if the tenant attempts to use other rental payments.  

Do I still have the landlord’s other recourse to recover the amounts due and unpaid under the lease?

It is important to note that the coronavirus law does not suspend the right to rent or other payments, only the right to give up the lease for non-payment until the end of the moratorium. As long as the moratorium applies, landlords retain the right to charge interest on arrears at a rate specified in the lease; initiate debt collection proceedings against tenants; and using the parent company or other guarantors, rent deposits or other forms of payment security. However, the following changes have been made, or are about to be made, which affect the remedies of other owners.    
Collection of arrears of commercial rents (CRAR)

As of September 29, 2020, the minimum amount of unpaid net rent required before being able to exercise CRAR in England and Wales has been increased to an amount equal to 276 days rent (after being increased from seven to 90 and then 189 days rent). This amount will increase further, to 366 days rent, on December 25.

However, remember that it is not possible to enter occupied premises in order to exercise rights under CRAR.  

Statutory requests and petitions for liquidation

The Corporate Governance and Insolvency Act entered into force on June 26, 2020 but, as expected, some of its parts have retrospective effect. The law imposes a temporary halt in the use of statutory requests (made from March 1 to December 31, 2020, extended from September 30) and liquidation petitions (from April 27 to December 31, 2020, also extended from 30 ) September) when the business is unable to pay its bills due to the coronavirus.     

Even before the law was passed, the courts were taking the government guidance on the draft Bill into account  in petition liquidation requests, but refused injunctions to prevent such petitions regarding debts owed long before the pandemic hit. declared.   

The law provides that between April 27 and December 31 no application for the liquidation of a company in England, Wales, Scotland or Northern Ireland can be made on the ground that the company has not paid the sums due by virtue of a formal notice notified on or after March 1, 2020. It further provides that a request for liquidation can only be presented between April 27 and December 31 if the creditor has reasons reasonable to believe that the coronavirus has not had a financial impact on the debtor or that the requested debtor has not been able to do so. pay his debts even though the coronavirus had not had a financial impact on it. If a petition is presented and it appears to the court that coronavirus has had a financial effect on the debtor, the Act prevents a winding-up order being made unless the court is satisfied the debtor could not have paid its debts even if there had been no such financial effect. These periods can be further extended under the Act for up to six months at a time.    

The government published a code of practice for landlords and tenants of commercial property across the UK  on June 19 . The code is voluntary, but it has been endorsed by a number of organizations, including RICS. The core tenet of the code of practice is “transparency and collaboration”, and the government is to encourage landlords and tenants to act “reasonably and responsibly”.        

Other remedies in Scotland

All other landlord remedies for non-payment of rent in Scotland remain available: eg penalty interest, summary diligence. 

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