June 9, 2020

The Covid-19 outbreak and the unprecedented requirement for social distancing continues to present never before seen contractual issues and logistical problems in the property market. Legal practitioners are having to adapt working practices and enhance critical thinking to address scenarios which have otherwise been approached in a standard and uniform way for years.

Our May 2020 summary of the latest Landlord and Tenant specific considerations, following the impact of Covid-19, is as follows:

Varied rental payments

There has been a huge impact on trade and business operations during the Covid-19 crisis. As a result, many tenants have sought rent reductions, deferments or have simply withheld rent altogether. There is already a limitation on the landlord’s ability to forfeit leases and now there is also a restriction on the use of CRAR, but the fact remains that the payment obligations are still there and once the restrictions are lifted, the landlord will be able to utilise their available remedies as before.

It is therefore hugely important that tenants liaise directly with their landlord on these issues and aim, wherever possible, to negotiate and agree any reduction, deferral or rent-free period. Any agreement reached should then be properly documented and consideration should be given to the following:

• Is the arrangement personal to the parties or is the intention to bind successors? For example, if the landlord were to dispose of their interest, would the arrangement bind their successor? Generally speaking, unless it is stated to be personal, the arrangement should bind successors.
• Is this a permanent arrangement or will it only last for the “relevant period” as set out in section 82 Coronavirus Act 2020? If not permanent, what happens when the period comes to an end, is the full rent immediately reinstated? If there was only a deferment, how will the back-dated unpaid rent be payable? How will interest be calculated if it is not paid as agreed?
• What happens if a rent review falls due during the concession period? Will the concurrent concession be ignored? What will be the rent “payable” immediately before the review date?
• If there is a guarantor, has their consent been sought to the rent variation arrangement?

Access to rent deposits

Despite restrictions on forfeiture and CRAR, there are no restrictions on access of rent deposits during this emergency period, and this has quickly been identified as a major gap in the relief systems put in place by the government.

Subject to compliance with any requirements of the rent deposit deed itself, landlords may withdraw funds from the rent deposit account where rent is left unpaid. There is usually then an obligation for the tenant to replenish the account, either on notice or automatically. Failure to comply with this obligation will give rise to a further breach. At the least s82 of the Coronavirus Act should apply here, meaning that forfeiture will not be available to the landlord during the emergency period. That said, as with all other rents, the obligation remains in place and enforcement action will become available to the landlord once again once the emergency period ends.

Break rights

Break rights are onerous and complex at the best of times and getting notices and exits right can be something of a dark art. During the current crisis then, it is even more important to carefully check the conditions that must be satisfied to exercise the break clause, this includes both the notice provisions and the exit conditions, as well as making sure rental payments are up to date. Where there are conditions for vacant possession, removal of all chattels and tenant works, there may be logistical difficulties with satisfying these requirements while social distancing restrictions are still in place.

Tenants must therefore carefully plan in advance to be able to satisfy those conditions and, where difficulties are foreseen, a transparent conversation should be had with the landlord in good time to agree (and document) a sensible solution.