We act for many tenants who are currently unable to physically use their premises, (whether retail, restaurant, office or industrial) and yet remain on the hook for payment of rent, service charge and even business rates.
Here are a few key points to consider, and please note we are happy to help/ discuss if you need advice on these or other related issues.
The crux of the advice below is that the best position is to seek to negotiate a rent holiday or, if not feasible, a deferral and document by way of side letter to ensure no dispute at a later date.
These are clauses which free parties from their obligations where there are extraordinary circumstances preventing the performance of such obligations. We are asked a lot if these apply to leases.
Unfortunately, most modern day leases will not have a Force Majeure clause.
It’s worth checking but it’s unlikely this applies.
If, however, you cannot use your Property due to reasons outside of your control you might be affected by the general rule of frustration of a contract.
Frustration, if effective, means all parties are discharged from their obligations.
This seems a hard argument to maintain as the prevention of use of premises is likely to be temporary.
Some basics on frustration:
A contract may be discharged on the ground of frustration when something occurs after the formation of the contract which renders it impossible to fulfil the contract (through no fault of either party) , or transforms the obligation to perform into a radically different obligation from that undertaken at the moment of entry into the contract.
From our recent research the principle of frustration could apply to a lease although there has apparently been no reported cases. A change in economic conditions would not allow frustration. However a law preventing the premises from being used could amount to frustration.
We suspect this in part depends on how long is left on the lease; clearly its harder to argue where there are many years remaining and you cannot use for a short time. Perhaps the user clause will be key; for instance if you only have use as a restaurant where restaurants cannot trade.
In short we don’t rule out frustration but it will be hard to succeed unless you may show prevention of use for the remainder of term. Ultimately these decisions will be governed by the facts of any case.
Non payment of rent / service charge
If the Landlord closes the building so you cannot use it then it may not amount to frustration (as that is a unilateral act by the Landlord) but the Landlord may be in breach of their own obligations in terms of derogation of grant that means stopping you from your using the property for the purposes anticipated by the Lease.
There may be a strong argument here to stop paying rent because the Landlord is breaching their own obligations but then again this is something we would need to consider based on your lease, as typically leases have non set off provisions i.e. you cannot stop paying rent just because the Landlord is in breach. You may in those circumstance, have to take legal action against the Landlord for their breach.
However, there must be an argument if you cannot use the property due to the Landlord stopping you that you shouldn’t pay rent in the longer term.
Of course the Landlord does have statutory obligations to protect all tenants, the public and comply with usual health and safety requirements and so any Landlord may have a defence.
Communication with the Landlord remains key.
The last announcement from the Chancellor had some help with business rates. There was a 12 month period for no payment but you will need to discuss with the Valuations Office of the relevant authority to be clear on the in certain circumstances and whether this could be of benefit to you.
Other Rent suspension
There will be almost certainly be provisions in your lease for rent suspension, but this typically only applies where the property or building is physically damaged or non-accessible so this is unlikely to assist.
The Government announced recent restrictions on a Landlord’s ability to forfeit the lease until June 30th, but this doesn’t prevent the Landlord from usual debt collection proceedings, such as applying for winding up of a company or bankruptcy proceedings against an individual.
- We recommend you have discussions with your Landlord now both in terms of their plans and any rent free to assist with the current crisis.
- If there are issues with payment of rent, can you negotiate a rent holiday? It must be something I suspect some Landlords may consider.
- Check how long you have left on the lease/ break options as a lease expiry in the near future may strengthen your negotiation.
- Check your business disaster insurance for cover in these circumstances. If so it maybe worth making a claim.
Disclaimer: this BLOG has been written to give general guidance on key issues on tenant’s leases but does not constitute legal advice and cannot be relied on ; should you require our assistance we are happy to provide advice.