Across Britain, the coronavirus lockdown has resulted in huge numbers of businesses not paying their office rent.
According to the Financial Times, just 41% of retailers paid their rent on the most recent quarterly rent payment date of March 25th—two days after the lockdown began. Similar stories have emerged from elsewhere in the world of commercial property, with tenants of office space, retail units and industrial units preferring to conserve cash rather than pay rent.
In the short term—at least until June 30th—non-paying businesses are somewhat protected. The government has clamped down on aggressive debt recovery practices: statutory demands and winding-up petitions will be voided, inventory can’t be seized, and locks can’t be changed.
Even so, most landlords and tenants are in dialogue. For both parties, the present situation is unsatisfactory: at some point, the lockdown will end, businesses will resume trading, and it will be important to put the landlord-tenant relationship once more back onto a proper footing.
Force Majeure: Commercial Contracts vs Commercial Leases in the UK
Different landlords, different responses.
Unlike commercial contracts, commercial leases in the UK have no provision for force majeure clauses. This means that there’s no legitimate way to avoid paying rent: within the terms of the lease, rent must be paid.
The effect of this is to push tenants to request a rent concession from their landlords. In other words, they can’t—or won’t—pay the rent now, but at some point, when conditions normalise, they will be able to pay.
In the commercial property marketplace, landlords are responding in different ways.
Some are agreeing to a rent holiday completely, waiving the current quarter’s rent. Others are agreeing to deferred payment: rent is not waived, and must be paid at some point—perhaps in stages—but non-payment right now is acceptable. In such circumstances, they may also charge interest, although this isn’t universal.
Here at The Legal Director, what we’re seeing in practice is that many landlords are agreeing to some form of rent concession.
But some, unfortunately, aren’t.
Do I have to pay my business rent?
If a business can’t trade, and hasn’t paid its rent, then such an uncooperative landlord attitude is probably short-sighted. At present—and until at least June 30th—there isn’t a lot that a landlord can do to enforce payment.
Even then, it’s likely that prudent landlords will want to tread carefully: going forward, demand for rental space may be muted, and it might be unwise to create a void that could be difficult to fill.
That said, it could be worth exploring three more avenues with your landlord, while you’re in dialogue with them.
First, thanks to coronavirus, many businesses don’t have to pay business rates. If your landlord pays these for you, and then charges you, it’s sensible to make sure that you aren’t being charged for business rates that now aren’t owed.
Do I have to pay my Landlord service charges?
Second, if your lease includes service charges—for things such as cleaning, security, or grounds maintenance—then it is possible that the actual level of services delivered will have reduced due to coronavirus. Again, if your landlord isn’t paying for something, then your business should pay proportionately less towards it.
And third, if your lease has a ‘break date’ coming up, it might be worth not exercising the break, in return for negotiating more favourable lease terms with your landlord—such as, for instance, a lease based on sales turnover, rather than a fixed rent.
Straitened situations
These are of course difficult times, to put it mildly. Many businesses are finding themselves in situations that would have felt unthinkable, even a couple of months ago.
Busy, vibrant—and viable—businesses have suddenly found themselves not trading, with furloughed employees and an unpaid rent bill.
In such circumstances, it’s often the case that practical hard-headed advice, given from a business perspective, can make all the difference.
So if we can help, don’t hesitate to reach out.
