COVID-19: Commercial landlords and tenants for NI & UK – points to consider when normality returns
A week seems like a long time for a large part of the population staying at home and for those key workers continuing to provide lifesaving services during the COVID-19 crisis. Keeping track of the rapidly changing situation and how it impacts your business can be difficult. In the commercial property world, it is no different.
While the UK government has enacted measures to protect tenants, shopping centre owners and other commercial landlords have warned ministers that they face extreme challenges without support to replace lost rental income. Talks are under way about what support can be made available to landlords, potentially in the form of loans or grants amid fears that some may not qualify for existing schemes. We shall continue to monitor these developments.
Previously, we considered the issues relating to rent holidays and concessions as a result of the emergency Coronavirus legislation preventing commercial landlords from evicting tenants for non-payment of rent for a three month period ending on 30 June 2020.
In light of the recent announcements from the government and the World Health Organisation, this date could be extended further.
With this in mind, we are looking to the future and examining points to consider when normality returns. Such points include:
- If a landlord and tenant have agreed to defer rental payments for a certain period of time, will the tenant be in a position to make those payments immediately at the end of this period? The tenant will need time to trade and get its business operating again in order to generate revenue and be in a position to pay rent. A subsequent deferment of rent for a month or a quarter may be required before the tenant can make rental payments again.
- A landlord will likely be entitled to charge interest on the deferred rental payments (this will be dependent upon provisions in the specific lease). It shall be at the landlord's discretion whether or not they enforce this right. If a landlord and a tenant have documented the deferral of rent, the landlord may have agreed not to enforce their right to charge interest on any deferred rental payments.
- During this period when COVID-19 restrictions apply, it is likely that rent reviews will be postponed given the lack of comparisons and market information available to conduct a review together with the inability for surveyors to inspect the premises. When normality resumes and the rent review is carried out, a landlord will likely be entitled to charge interest on the back dated rent (again, this will be dependent upon the provisions in the relevant lease). If a tenant has an upcoming rent review, it may be prudent to discuss such an issue with their landlord.
- There is a moratorium against forfeiture in place until 30 June 2020 and this could be extended further. What will constitute a return to normality? Will it be when social distancing restrictions are lifted? Or when the government allows certain business to open and operate again? This will unlikely happen overnight, rather gradually and in stages. When "normality" does return, a landlord will want to exercise its ability to withdraw any rent concessions or deferred rent arrangements. A tenant will want to insist that any concession period continues to the agreed end date.
- How we live and work will never be the same again. When major unforeseen events occur, we change our behavior and adopt practices to help prevent or, at least mitigate, against the impact of the event re-occurring. We recently witnessed the impact on surrounding businesses that followed a major fire to a building in Belfast city centre; despite no fire damage to the adjoining premises, the public were prevented access to them for a prolonged period due to health and safety reasons. As a result, leases negotiations have placed greater emphasis on protecting tenants against such unforeseen disasters. Protection against disease related closures will now be reflected in the terms agreed within property development and leasing documents.
For further information please contact Tomás McLaughlin, Senior Associate or any member of the Commercial Property team at A&L Goodbody Belfast for support on any specific COVID-19 related queries you have.
Date published: 2 April 2020