COVID-19: Commercial Landlords And Tenants Q & A - What Are Your Options?

We have put together a number of frequently asked questions relating to the impact of COVID-19 on real estate.

1. The tenant has missed their rent payment

   i. Can a landlord forfeit the lease?

   No - the Coronavirus Act 2020 has been passed by Parliament and is awaiting Royal Assent. It prohibits a landlord from forfeiting a business tenancy for non-payment of rent (Section 82). This prohibition will remain in place until 30 June 2020 (subject to extensions).

   Landlords should note that 'rent' is widely defined; "Rent" includes any sum a tenant is liable to pay under a relevant business tenancy. This definition seems to be extraordinarily wide as it would also include service charge, insurance rent, interest and any sums that are required to be paid under, say, a Jervis v Harris clause (where a landlord serves a notice on the tenant requiring them to carry out works, if the tenant refuses the landlord has the right to carry out the works themselves and charge the tenant for those works as a debt).

   ii. Can a landlord take other action to recover arrears?

   In theory, yes - the Coronavirus Act does not prevent a landlord taking other steps to enforce their security. Therefore the normal options are available including:

   drawing on the rent deposit (subject to the terms of the deposit); Commercial Rent Arrears Recovery; Guarantors and former tenants under Authorised Guarantee Agreements (AGAs); issuing a statutory demand; and a money claim. We recommend that landlords work with tenants to establish a pragmatic payment plan in these exceptional circumstances as set out in our insight - COVID-19: Landlords and Occupiers Should Work Together.

   iii. Will a landlord compromise its position by negotiating a lower rent or suspending rent with my tenant?

   Not necessarily - in accordance with the Coronavirus Act, no conduct by or on behalf of the landlord, other than giving an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture for non-payment of rent.

   Thus the landlord's right to forfeit is protected if they enter into any negotiations with the tenant in order to agree rent concessions, or other means of staggering or reducing payment of rent, as long as they do not expressly agree to waive the right to forfeit.

2. If a landlord closes a shopping centre; is that derogation from grant?

   Derogation from grant will always depend on what has been granted in the lease. However, in a typical scenario, where the Landlord has granted the right to the tenant to use the shopping centre and/or has covenanted to keep the centre open during trading hours, then it is likely to be a derogation from grant to close the shopping centre.

   The Landlord may argue that as the shops have to close, they are simply taking pragmatic steps which will reduce the service charge cost for all tenants and also provide additional security for the non-trading units. To the extent that all of the shops within the centre are required to close pursuant to the recent announcement, then practically, it is difficult to see any of the tenants objecting to the closure of the centre.

   However, typically, shopping centres also contain a supermarket offering and/or pharmacy offerings. If the centre is closed such that the supermarkets and/or pharmacy cannot open, then they will almost certainly have a claim for derogation from grant. As it stands, shopping centres themselves are not required to close, only the shops within them that sell non-essential items.

   A tenant may seek an injunction requiring the shopping centre to open, or damages.

   Supermarkets and Pharmacies

   If supermarkets or pharmacies are located in shopping centres, they...