Update on the impact of Covid-19 on commercial leases.

We are still receiving many enquiries from landlords and tenants about their rights and obligations under commercial leases, primarily arising from the restrictions on access to premises as a result of COVID-19. This article provides different information to our first release, which you can read on our website under COVID-19 information.

Observations
  • Many landlords have agreed to rent reductions while tenants are unable to access their premises. For some, this is a requirement under the Deed of Lease, and for others, it is not.
  • Regardless of whether it is a requirement of the lease or not, it will usually in the best interests of the landlord to grant some form of rent relief to improve the tenant’s chance of business survival at such a challenging time. As indicated in our previous article, the commercial leasing landscape is likely to change significantly over the next few months and it may be harder to find quality tenants in the future.
  • Landlords have their own financial commitments, so tenants need to be realistic about the proportion of rent reduction to expect.
  • If the landlord and tenant are unable to reach an agreement on the amount of the rent abatement there are a number of options for resolving the impasse. These options include various dispute resolution methods specified in the Deed of Lease. Due to the costs, unpredictability, and length of time to complete, legal proceedings will usually be a last resort. The right approach will depend on the particular circumstances so advice should be sought.
Law Change
  • The Government has announced that it will be changing the law by extending the timeframes required before landlords can cancel leases.
  • Landlords will now have to give 30 working days’ notice before they can cancel a lease, which is an increase from the previous notice period of 10 working days. This new timeframe applies both to the period the tenant is in arrears before the notice is given, and for the period to remedy the breach.
  • In other words, before a landlord can cancel a lease for non-payment of rent:
  • The rent must have been in arrears for 30 working days after the rent payment date, and
  • The tenant must have failed to remedy the breach within 30 working days after the landlord serves notice to do so.
  • This law change is expected to be introduced on 27 April 2020 but is likely to have some retrospective effect.
  • Before a landlord issues a breach notice for failure to pay rent (or any other breach) it is important to take legal advice to ensure the strict requirements of the lease and the Property Law Act 2007 are followed correctly.
Insurance

The best information we have at the time of writing is that:

  • Landlord insurance policies do not cover loss of rent in the current circumstances; and
  • Only one type of business interruption policy includes any cover for tenants in these circumstances and is in the early childhood education industry.

 

So for all landlords and the majority of tenants, insurance is not able to be relied on to help them through this situation.

Davenports Law remains available to assist during the current situation. If you would like advice in relation to your rights and obligations under a commercial lease or any other commercial contracts please get in touch and we will be happy to help.

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