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COVID and commercial leases | What you need to know

COVID and commercial leases | What you need to know
COVID and commercial leases | What you need to know

What landlords and tenants need to know.

How does COVID-19 impact commercial lease obligations?

Given the potential adverse financial impact on tenants, a common question is whether tenants can refuse to pay rent, pay less rent and/or seek to terminate the lease prematurely.

The starting point is to review the terms of the particular lease. The relevant provisions to consider include:

  • Any break clause that may enable the tenant to terminate the lease early;
  • Any turnover rent provisions that are dependent upon the income generated from the premises; and/or
  • Any force majeure clause (although these are rarely found in commercial leases and there is no common law right to terminate for force majeure).

Most modern commercial leases will provide for rent to be payable without deduction or set off. In those circumstances a tenant is unlikely to be able to withhold payment of rent for Coronavirus-related reasons unless any specific provision in the lease enables it do so, or unless it reaches an agreement with the landlord.

Rent suspension clauses generally only apply where premises have been damaged or destroyed.  Tenants may therefore struggle to argue for a rent suspension in reliance on such provisions.

Can a Landlord forfeit the lease and evict the tenant for non-payment of rent?

Along with other unprecedented measures to protect the public and the economy, the UK government announced on 23 March 2020 that commercial landlords are to be precluded from forfeiting commercial leases and evicting the commercial tenant for non-payment of rent. This measure was subsequently extended until 31 December 2020 and then further to 31 March 2021. Whilst the Government announced what it said would be “the final extension to protections” for business tenants, it remains possible that the restriction on forfeiture could be extended further.

These measures form part of the emergency Coronavirus Act 2020 which was enacted on 25 March 2020.

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