Coronavirus legislation: Commercial tenants can delay on rent without fear of eviction

It would be an understatement to say that the world is facing unprecedented times. As a result of the coronavirus pandemic (COVID-19), the UK has been on official lockdown since 23 March 2020. Subsequently, all businesses have had to stop normal trading (except essential shops). This has created a practical dilemma with some businesses having to rely solely by operating online, which in turn has limited their revenue. In response to this, the UK government has stated that commercial tenants will be protected from eviction if they are unable to pay their rent for the next three months.

Although the UK government’s protection from eviction during this troubling time is welcomed by businesses (especially small businesses), as the commercial tenant is still liable to pay this rent during the three month period, it does not serve as a financial relief. Consequently, there is still a real issue for businesses on how they are going to pay their commercial rent.

The UK government has reported that “sensible conversations”[1] are being had between commercial tenants and their commercial landlords. Nevertheless, it may be in the interest of the commercial tenant to seek the assistance of a solicitor in drafting a repayment agreement to take effect after COVID-19. This will ensure that they will not be placed under financial pressure to pay their commercial landlord all the monies owed at once, whilst trying to focus on rebuilding their business. Nevertheless, the repayment agreement is likely to run alongside their original rent plan (payment of the normal quarterly rent). Thus, the commercial tenant will pay an agreed amount of the rent owed (COVID-19 rent) whilst having to pay the normal rent as it falls quarterly.

Example:

Prestige Haircare Ltd (commercial tenant) owes Big Boss Limited (commercial landlord) £50,000.00 for the period of 23 March 2020 to 23 June 2020. Due to COVID-19, they have only been able to pay £30,000.00.

Due to UK government legislation, Prestige Haircare Ltd cannot be evicted for not paying the £20,000.00 that it owes Big Boss Limited for the period of 23 March 2020 to 23 June 2020.

However, Prestige Haircare Ltd would like to have a repayment agreement that states it will pay Big Boss Ltd £5,000.00 per month for the next four months and £50,000.00 for the quarterly rent due for 23 July 2020 to 23 September 2020. Furthermore, Prestige Haircare Ltd may want to include in the repayment agreement that no eviction proceedings will be issued against it whilst the repayment agreement has effect.

In order for this agreement to be accepted by the commercial landlord, the following should be considered:

  • The likelihood that the commercial tenant will be able to pay the COVID-19 rent alongside the normal rent.
  • The likelihood that the commercial landlord would prefer to find another tenant after COVID-19 (negotiating powers of each party).

Please contact our Commercial Property Department to discuss any questions you may have.

 

[1]https://www.gov.uk/government/news/extra-protection-for-businesses-with-ban-on-evictions-for-commercial-tenants-who-miss-rent-payments

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