Coronavirus and Commercial Property

The negative impact of coronavirus on the real estate market has caused great concern and raised many questions among those who have control of a commercial property.

Questions relating to commercial tenants and landlords are quickly increasing in light of the individual and wider economic impact on business transactions, at present and in the near future. If business premises are closed, significant cost implications arise as businesses are unable to continue trading out of the property/premises.

Section 82 of Coronavirus Act 2020 has introduced protection of the tenants’ position by not permitting commercial landlords to enforce their rights of re-entry or forfeiture for non-payment of rent, until 30 June 2020 (this period may be further extended). With the debt remaining payable, however, businesses remain concerned due to the uncertainty and there are many unanswered questions around existing and new commercial property agreements, which include the following:

• Could tenants possibly claim reduction in rent, or are there any rent suspension rights within the agreement?
• What happens with regards to service charge obligations?
• Can a lease agreement be brought to an end by either party?
• What if the parties have entered into an agreement for lease? Can they refuse to enter into the new lease?

In the first instance, the situation calls for review of the contracts. Tenants and landlords should refer to the specific terms of their agreement to establish whether the present circumstances are covered, and seek professional advice where appropriate. Businesses should also review their insurance policies as to whether virus or pandemic related risks are covered.

Finding a solution for landlords and tenants

Regardless of the terms of the specific agreement, the parties could consider negotiating a mutually beneficial and commercially sensible solution to adapt to the current situation, so that business insolvency is avoided. The new commercial reality can exercise pressure on the parties to renegotiate their terms and proposals, and could include, amongst others, the following:

• negotiating the frequency of the rental payments
• agreeing a moratorium on the payments
• negotiating a reduction of the rent and share the burden
• re-evaluate the position in relation to service charge obligations

Before proceeding with any such steps, businesses should consider seeking specialist legal advice and their solicitors will be able to assist with any side agreements/new agreements that your commercial counterpart may require. Provisions relating to COVID-19 or other pandemics in general can also be introduced into the agreements for the best possible protection of both parties.

How can Ellis Jones help you?

Due to the uncertainty of the current climate, the risks feel far greater and businesses understandably hesitate in proceeding with any planned property transactions. Nonetheless, with appropriate legal advice and guidance, businesses may be able to ensure the utmost protection of their legal position to reflect the commercial necessities of our days.

If you have any questions or concerns about your commercial property transactions, please contact our Commercial Property Partner, Richard Tombs, on 01202 057815 or at richard.tombs@ellisjones.co.uk and we will be happy to discuss your specific circumstances with you in order to find a solution.