Can commercial property tenants suspend rent payments?

Most retail and trade businesses have been required to close following Government guidelines put in place in recent weeks. Whilst many commercial leases include an obligation on the part of the tenant to remain open, they would usually allow closure in compliance with any legal requirements relating to the premises and the occupation and use of the premises by the tenant.

Many commercial tenants are now finding themselves unable to use their leasehold premises as a result of COVID-19 containment guidelines and would be turning to their landlords to try and agree a rent suspension.

Under the usual insurance provisions, commercial leases only provide for a suspension of the rent in circumstances where the premises are damaged, destroyed or unusable due to an insured risk. Insured risks would not usually include the current coronavirus epidemic. If they do, though, then the landlord may be obliged to provide a rent suspension and should seek to recover the rent from their loss of rent insurance. Nevertheless, in most circumstances the provisions of the lease would require the tenant to continue to pay the landlord the rents owed.

The Government identified the need to assist commercial tenants during this epidemic and introduced measures within the Coronavirus Act 2020 (“the Act”), which came into force on 25 March 2020. Section 82 of the Act protects commercial tenants by prohibiting landlords from forfeiting leases for non-payment of rent. ‘Rent’ includes any sums a tenant is liable to pay under a relevant business tenancy. Insurance rent and service charge therefore fall within the scope of ‘rent’ under section 82 of the Act. These measures apply until 30 June 2020 but could be extended if the Government decides this is necessary. This means that tenants will not be forced to leave their premises if they are unable to make rental payments within the next three months.

However, tenants should be mindful that the moratorium on forfeiture is only a deferment and any rents not paid will remain due to the landlord once the suspension has been lifted by the Government.

As this crisis has brought many unprecedented challenges, landlords and tenants must recognise that working together during this time would make the most commercial sense.

Maha Mohammed