Earlier today the Government announced that it will shortly introduce law to provide minor relief to commercial landlords and tenants during the COVID-19 lockdown, however the changes don’t go as far as many had hoped. The Government has not announced any financial assistance, rent holidays, or a prohibition on increasing commercial rent. Once in force, the new law is intended to be temporary and will be repealed after six months.
IF A COMMERCIAL TENANT FAILS TO PAY RENT
Under current rules, a commercial landlord can cancel a lease as soon as 10 working days after a tenant fails to pay rent or outgoings. This will be extended to 30 working days. This change is intended to give more time for commercial tenants to catch up with rent payments (or negotiate an alternative solution with the landlord) before the landlord can cancel the lease.
IF A COMMERCIAL LANDLORD FAILS TO PAY MORTGAGE
Under current rules, a bank must give 20 workings days’ notice before it exercises its powers to sell the mortgaged property, following a default. This will be extended to 40 working days. This change is intended to both recognise that a landlord might not be receiving the full rent that they would normally expect to receive, and to give more time to make alternative financing arrangements if necessary.
EXISTING NOTICES ISSUED DURING THE LOCKDOWN.
All existing notices to cancel a lease or exercise powers under a mortgage that have been issued since 4 April 2020 will automatically be treated as though the new timeframes will apply.
REDUCTION OF COMMERCIAL RENT DURING LOCKDOWN
We’ve previously published that most modern leases already record that rent is reduced by a ‘fair proportion’ during a lockdown. Over the past three weeks it has become clear that most landlords and tenants (and many of their advisors) each have a different idea of what a ‘fair proportion’ is, and that what is fair in one situation, may not be fair in another. No court has yet had to determine what is a ‘fair’ reduction, leaving it up to the parties to negotiate a realistic outcome themselves, for their particular situation.
For any guidance on any of the above issues, please reach out to one of the iCLAW team.