Commercial leases in the time of coronavirus

Commercial leases in the time of coronavirus

Linkilaw Commercial Property

The outbreak of the coronavirus has raised many questions for occupiers of commercial properties. If you are a tenant during these uncertain times, you are likely to be concerned not only about keeping your overall business going but also about protecting your rights as a tenant.

We discuss below your options at this stage and share our suggestions on how to structure your thinking process.

Check the terms of your commercial leases

Your commercial lease agreement is the first place to start if you are unsure about your ability to pay rent or service charges.

Most agreements provide for a rent freeze only if the property is not fit for occupation, for example, in the event of a fire or flood and rarely contain a force majeure clause that is broad enough to cover a global pandemic. In fact, compared to commercial contracts, force majeure clauses are not that common in commercial lease agreements.

But your lease may state that you are entitled to a reduction in service charge payments if your landlord cannot provide access to the premises or usual services. So your first point of call should be to review your agreement.

Start a dialogue with your landlord

The chances are your landlord, as you are, is as interested in continuing your commercial lease agreement, keeping you as a paying tenant and seeing your business survive these difficult times. Have a look at your lease, understand the scope of your rights, and start a conversation with your landlord about temporary concessions.

Consider terminating your lease

If the conversation does not go as planned and your landlord is unwilling to agree a concession, you could consider terminating your lease. There may be several options available to you here (all depending on what your agreement says) from simply serving notice to exercising a break clause to surrendering the premises altogether.

If you decide to take the surrender route, keep in mind that you will still need to secure your landlord’s agreement. Most likely, the success of your endeavour will depend on the landlord’s plans for the property and ability to re-let the property in the current market conditions.

Review your insurance options

Remember that in these strange times your insurance can play a central role. You may be able to recover some of your rent (and service charges) through your business interruption insurance. And if you have been prudent enough to have one, reviewing your policies may be another course of action to consider.

Keep up with the legislation

The good news is that the government is looking at ways to assist commercial tenants.  Parliament is now considering the Coronavirus Bill that would restrict your landlord’s eviction rights. If adopted, the proposed protection would last only until 30 June 2020 and would not relieve you from your payment obligations.

Next steps

Although you need to know your legal obligations and commitments, we strongly recommend seeking legal help on issues which may arise in the context of commercial leases transactions.

Whether you are a landlord or a tenant, it is also important not to assume that you will automatically be released from your obligations under commercial leases in light of public health emergencies.

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