Advice to landlords in relation to tenants seeking rent abatement26th March 2020 - Published by David Moroney
What is the Government position in relation to payment of rent pursuant to business tenancies?
The impending legislation in relation to Covid-19 will place a moratorium on landlords ability to forfeit a lease for non payment of rent until 30 June (with an ability for this date to be extended). As such, during this period, a landlord will not be able to take action to forfeit a lease as a consequence of a tenant failing to pay rent.
Does this mean that a tenant does not have to pay their rent?
No, the tenant is not released from their obligation to pay rent. A failure to pay rent will still constitute a breach of the terms of the lease, and the landlord will have the usual contractual remedies in relation to the same, other than to seek to forfeit. It is however our view that insolvency steps would not be viewed favourably by the courts given the current climate.
What do I do if the tenant writes to me to request a period of rent suspension?
Notwithstanding the drafting of requests for rent holidays or rent free periods, tenants are not entitled to the same, and a landlord is not bound to accept such a request (any well advised landlord who was minded to accept a request would proceed by way of rent deferment, rather than suspension). It may be perceived by landlords that absent the ability to forfeit, they are in a toothless position. The tenant should be reminded of their lease commitments, which are contractual in nature, and placed on notice of the potential losses which the landlord could incur as a consequence of a tenants failure to pay rent, so that the tenant is fully aware of the full consequences of their decision. Such losses could be considerable, and far outweigh the value of a rent abatement period in the case of a property which is subject to a charge.
Upon receipt of such requests landlords are in a large number of instances agreeing that tenants can move to a monthly payment cycle in order to assist with cash flow. Landlords may however view this as an opportunity to work with their tenants to improve both parties positions. Significant rent free periods could be offered to tenants in return for favourable lease concessions, which could have a long term benefit to the value of the landlords reversionary interest in the premises. Any funder should of course be consulted and consent obtained to any variations of this nature.
Will I receive similar protection against my funder taking enforcement action?
Any failure by a tenant to pay rent potentially places a borrower in breach of their funding obligations, and their ability to service debt. At present there are no corresponding proposals from Government to protect borrowers from enforcement action from funders in the event that they are placed in breach of their obligations by virtue of a tenant not paying rent. If a borrower is notified of a tenants intention to withhold rent, they should immediately engage with their lender to mitigate the impact upon their finance covenants.
If you would like assistance in managing your tenant relationships, please contact David Moroney on 0161 838 7866 or email email@example.com.