The UK continues to cater to the challenges caused by the surging cases of Coronavirus/COVID-19. The number of enquiries from landlords and tenants are growing as to how this may impact their real estate arrangements.
We have already seen the challenges emanating regarding deposit protection, landlords insurance, and so on. Due to the pandemic and continued extension of government restrictions, such as lockdowns and social distancing. Therefore, landowners and tenants from all sectors must understand the implications for their real estate related rights and liabilities.
So, what are the pressing issues and concerns regarding commercial landlords and tenants?
What can I do if my tenant has not paid rent yet?
Right after the outbreak of COVID-19, the UK government passed an act named Coronavirus Act 2020. This act explicitly suspends the ability to forfeit a commercial lease for non-payment of the tenant. You can not, therefore, start the eviction process at present. In December, the government further extended this act until 31 March 2021. And recently, in March 2021, the government again extended this act to the end of June 2021.
However, from the onset of July 2021, unless the government further extends the duration of this act, you will be able to terminate the lease and recover your property from this point. Consider the possible merits of doing this early as you will potentially be left with an empty real-estate property that could be hard to fill.
Lease termination is not the only option. You can also commence court proceedings for breaching the lease contract to compensate your losses. You can also initiate the Commercial Rent Arrears Recovery (CRAR) method of seizing goods to the debt owed value if your tenant has missed rent payments. Currently, the government has extended this legislation further to restrict landlords from issuing statutory demands to wind up a tenant agreement between 1 March and 31 March 2021. These statutory demands have been put on hold to provide relief to the tenants who are unable to pay debts due to the impact of Coronavirus.
Additionally, the government has further extended the legislation mentioned above regarding landlords exercising CRAR to recover goods to the sum of the outstanding debt. You can only use CRAR for arrears of rent. This extension means that the minimum number of days’ due rent required for CRAR will be 457 days’ unpaid rent between 25 March and 23 June and 554 days’ rent between 24 and 30 June.
Should tenants keep Open or Re-open their residences?
Nowadays, some commercial lease agreements contain ‘keep open’ clauses or ‘operating/opening hours’ clauses, or both clauses joined together.
In light of the recent extended restrictions that came into effect on 26 March 2020 under the Health Protection Regulations 2020, many premises were closed to the general public. However, several public sectors are being permitted to re-open, but that may prove difficult for some business owners because they do not wish to expose their staff and customers to potential COVID-19.
If a tenant is obliged to “keep open” the premises, it is most probable that these health regulations will provide a defence against this requirement of “keep open”, especially if it can be proved that keeping the premises open will be unlawful and harmful. Further, the courts are generally hesitating to order specific keep open provisions and force tenants to re-open their premises. However, suppose these Health Regulations are no longer applicable to the tenants business. In that case, a tenant is once again perhaps obliged to “keep open” the premises.
Can insurance be helpful in such a case?
Both landlord and tenant must review their insurance policies and contact their insurance providers to understand the coverage. Some policies offer business interruption cover in landlord insurance policies, but this may only be applicable if there is property damage or tenant liability insurance or where the government has directed an order, which means it is deemed illegal for premises to stay open.
In the majority of cases, cover for infectious viral diseases will have been an opt-in extra, and most companies will require the disease to be termed as ‘notifiable’. The UK government on 5 March 2020 declared COVID-19 as a notifiable disease. Landlords and tenants must note that invoking a force majeure or a frustration claim may substantially impact their insurance policies, and, in any case where cover may be available, parties should ascertain and cautiously comply with any notification protocols.
It has been observed that some insurance providers were refusing claims made by both landlords and tenants. Consequently, the FCA announced the unprecedented step to obtain a court declaration to resolve business interruption insurance uncertainty and whether specific insurance policies will cover for business interruption related to the current pandemic crisis. Recently, the Supreme Court has now handed down its judgment which found that some of the same business insurance policies provided cover.
Since the outbreak of COVID-19, the financial uncertainty has impacted; no one is spared at all. The above-discussed issues are not final and there could be many. However, whether you are a landlord or tenant, it is imperative to understand your legal obligations. Furthermore, bear in mind not to assume that you are or will be automatically released from your legal obligations under a lease in the light of current circumstances.