Coronavirus: advice for UK landlords

Out-Law Guide | 27 Mar 2020 | 12:48 pm | 7 min. read

UK commercial and residential tenants who miss rent payments due to the impact of the coronavirus pandemic are to be protected from eviction for at least three months.

The necessary legislation for England, Wales and Northern Ireland is included in the Coronavirus Act. These measures do not apply in Scotland but similar protections are anticipated in emergency legislation to be passed by the Scottish government next week.

As additional restrictions on movement and businesses are announced by the government in an attempt to control the spread of the outbreak, landlords may struggle with the impact on their buildings and rental income. Some of the potential issues for landlords of commercial properties in particular are set out below, but specific legal advice should be sought before any action is taken.

Can my tenant terminate their lease arguing that it has been frustrated?

It is unlikely that a tenant will be able to argue that the lease has been frustrated.

The bar for termination of a lease by 'frustration' is high: it applies where supervening events unprovided for in the lease significantly alter the parties' obligations and bring the lease to an end. It is unlikely that a temporary inability to occupy the premises would meet this test.

Where the tenant has a contractual break, the pandemic may make it more likely that the tenant exercises that break.

Can my tenant claim a reduction in rent if they are unable to use the premises?

Probably not. Very few leases contain a 'force majeure' clause which could allow either party to say that the obligations in the lease are suspended because of Covid-19.

The bar for termination of a lease by 'frustration' is high: it applies where supervening events unprovided for in the lease significantly alter the parties' obligations and bring the lease to an end. It is unlikely that a temporary inability to occupy the premises would meet this test.

In most leases the obligation to pay the rent is only suspended, or the amount of rent reduced, where there has been "damage" to or "destruction" of the premises by an insured risk or, in some cases, an uninsured risk. Covid-19 itself does not cause physical damage to or destruction of premises, so these provisions are unlikely to be engaged.

Turnover rents in retail leases will be significantly impacted where premises are forced to close.

As a landlord, you may decide to defer, reduce or entirely suspend the rent for a period to avoid tenant insolvency. Any decisions of this type must be documented very carefully.

Do I still have to provide services to my tenants?

As above, very few leases contain a force majeure clause which could allow the landlord to suspend its obligation to provide any services.

However, check the lease to see if the obligation to provide services contains exclusions such as in respect of matters outside the landlord's control, or if the obligation is only to use reasonable endeavours to provide the services. In the latter case, if the coronavirus makes it impossible to provide the services using reasonable endeavours – for example, due to staff or contractor sickness – you should not be liable for any failure to provide the services.

Provision of services should take account of the restrictions and requirements for social distancing under the Coronavirus Act 2020 and guidance from Public Health England (PHE) and Health Protection Scotland (HPS). This guidance is being reviewed and updated regularly.

Do I have to provide deep cleaning or other additional services?

This will depend on the terms of the lease. An obligation to clean, and keep safe, the common parts of the premises may well cover deep cleaning. It would be unusual for there to be any obligation on a landlord to clean demised premises leased to individual tenants as opposed to the common parts, or for there to be any right of access to enable the landlord to do so.

However, it may not be practical to deep clean the common parts without also cleaning the demised premises. You must also comply with your obligations under UK health and safety law, which require landlords to do everything reasonably practicable to ensure the health and safety of their employees and to ensure people working in or visiting a building are not exposed to risks to their health to the extent that the landlord has control of the premises. To the extent that you do not have control, your tenants must also comply with their own health and safety law obligations.

If I do provide extra services, can I recover the cost from my tenant?

Again, this will depend on the terms of the lease. Landlords will often have the right to provide and charge for additional services – such as for good estate management or other reasonable reasons - and this may extend to deep cleaning or other protective measures.

Where the lease provides for the recovery of costs incurred in the supply of services the landlord considers it has become usual to provide in similar buildings, or where enhanced cleaning follows government recommendations, then it should be possible for the landlord to recover the additional cost.

Can I close the building?

Closure of the building might mean you face claims from tenants for breaches of landlord covenants, in particular covenants for quiet enjoyment and not to derogate from grant.

If closure is required by law or in accordance with PHE or HPS advice, then this could provide a defence to any claim for breach of landlord obligations under the lease. If closure goes beyond what is legally required or recommended by the guidance, then the landlord may be liable for tenants' losses as a result of breach of covenant.

Closure, whether or not in accordance with PHE or HPS guidance or legally required, will not usually result in rent suspension or termination rights under the insurance provisions becoming relevant unless there is physical damage to the premises although the lease drafting and relevant insurance policy should be checked. Again, where closure goes beyond what is legally required or recommended in PHE or HPS guidance the tenant may have a claim for breach of covenant.

The landlord will have health and safety law duties towards any of its own employees working in the building.

Can my tenant refuse to pay rent if I close the building?

Probably not. Even if the tenant has a claim for breach of covenant, if, as is common, the lease says that rent is payable without deduction or set off, they should continue to pay the rent and then seek to recover damages for breach of covenant as a separate action.

Rent suspension provisions are unlikely to apply, but the wording of the lease should be checked.

Consultation with the tenant in relation to any potential closure may help to minimise the risk of litigation in the future.

Can my tenant close its premises?

Yes, unless the lease contains a 'keep open' clause or clause requiring the premises not to be left empty for a period which the closure exceeds. However, if the closure is required by law or in line with PHE or HPS guidance, it is unlikely that any keep open covenant or covenant not to leave the building empty would be enforceable.

You should check whether leases provide for the tenants to notify the landlord if the premises are left empty, as this may affect your insurance. It is a good idea to liaise with tenants where possible about their intentions, so that you can inform the insurers when buildings are empty.

Do I have to act in good faith if the tenant asks for variations to the lease and rent to reflect coronavirus?

Not unless there is a specific provision in the lease, which would be unusual. However, there may be commercial or reputational reasons why you would want to engage with the tenants in respect of any request, particularly where necessary to avoid tenant insolvency.

What happens if the government forces the closure of premises?

Without specific legislation, this would not alter the parties' obligations under the lease. However, the obligation to comply with statute may remove the right of either party to enforce any covenant that had been breached.

Government intervention may make it easier for tenants to claim on their business interruption insurance.

Can I change the opening hours of the premises?

This will depend entirely on the provisions of the lease.

If the lease contains a tenant's covenant to comply with reasonable regulations the landlord makes from time to time, a regulation which required tenants to follow PHE or HPS guidance would be reasonable.

Do I still have the same remedies against the tenant for breach of obligations that remain unchanged?

Broadly, yes, except for the three-month moratorium on landlords' ability to forfeit leases of commercial property for non-payment of rent in England, Wales and Northern Ireland under the Coronavirus Act. Similar protections from eviction are in place for tenants of many types of residential property tenancies, including assured and assured shorthold tenancies.

The relevant provisions of the Coronavirus Act apply to the vast majority of commercial leases, but not most leases for terms of less than six months. They prevent landlords from taking action to forfeit for non-payment of rents or other sums, including service charges and insurance rent, from 26 March until 30 June 2020. This period may be extended. This does not suspend the right to rent or other payments, only the landlord's right to forfeit the lease for non-payment until the moratorium ends.

It is anticipated that emergency Scottish legislation will be passed next week introducing a similar three-month moratorium on landlords' ability to irritate leases of commercial property for non-payment of rent. Similar protections from eviction are anticipated to be put in place for tenants of many types of residential property. 

Can I still proceed with court proceedings for forfeiture which began before the forfeiture moratorium?

The Coronavirus Act provides that orders for possession not yet made in existing proceedings in England, Wales and Northern Ireland must not require the tenant to give possession before 30 June 2020. Where an order for possession has already been made, the Act allows the tenant to apply to vary it, in which case the court must ensure that the tenant does not have to give possession before 30 June 2020.

Will I need to stop demanding rent once any arrears fall due to preserve my right to forfeit when the moratorium ends?

The Coronavirus Act protects landlords in England, Wales and Northern Ireland from inadvertently waiving the right to forfeit for non-payment of rent or other charges during the moratorium period. You can therefore continue to demand rent and deal with requests for consent etc. under the lease without waiving the right to forfeit for non-payment of arrears.

However, if you want to forfeit for some other breach of the lease, the usual rules apply and you will need to stop demanding rent or taking any other action consistent with the continuation of the lease.