The UK has witnessed some of the most challenging economic conditions of a generation due to the Covid 19 Virus. Businesses both great and small have experienced great pressure on their ability to continue trading. Although the furlough scheme has helped, both landlords and tenants in residential and commercial properties are having to deal with some uncomfortable choices. In this article, how to get out of a commercial lease due to covid, we take a look at the options open to you and the mechanism involved.
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For a free initial discussion on how we can help you deal with an existing commercial lease agreement and ways to get out of it, get in touch with us today. We will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help you avoid making mistakes, saving you money and also avoiding the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.
Can a commercial tenant withhold rent?
The first thing to do is refer to your lease. The most important things to consider in this instance are:
- Is there a break clause in the lease that will allow the tenant to terminate early?
- Are there any clauses in the lease that state rent is dependent on turnover generated from the property
- Is there a force majeure clause in the lease? In reality, it is extremely rare to see force majeure clauses in a commercial lease and, as such, irrespective of any external factors such as a pandemic, a tenant will generally be contractually liable to continue to pay the annual rent and comply with the terms of the lease come what may.
Most modern commercial leases will provide for rent to be payable without deduction or set off. As a result, a tenant won’t be able to withhold rent unless there is a specific provision within the lease to this effect or unless the tenant reaches an agreement with the landlord to have some form of rent holiday.
Rent suspension clauses generally only apply where premises have been damaged or destroyed. Tenants may therefore struggle to argue for a rent suspension in reliance on such provisions.
Can a commercial tenant terminate the lease?
Although it is extremely unlikely that a lease will contain a provision for the tenant to terminate based upon prevailing economic challenges caused by a pandemic or similar, most leases will include a number of opportunities to break the lease early without incurring a financial penalty. Whilst this will obviously vary from lease to lease, it is important that tenants check to see what (if any) break options exist in their lease. Whilst it is more common to see break options set for fixed dates, it is also possible for breaks to be structured on a rolling basis. Where a tenant has the option of utilising a break clause, it is imperative that any conditions attached to the break are fully satisfied and complied with otherwise it will be rendered void.
In addition, to break options, tenants may have the ability to terminate their lease on relatively short notice where they are continuing in occupation following the expiry of a fixed-term lease. This is referred to as “holding over”. Where this applies, a tenant will have the option to bring the lease to an end on serving not less than three months’ notice at any time.
If, however, there is no relevant break clause in the lease or you are not holding over, the only option open to the tenant will be to see whether the landlord is open to the surrender of the lease. It is definitely worth trying as the landlord may well have other plans for the property and this arrangement may be advantageous to him. Unfortunately, as commercial landlords are also experiencing financial hardship due to the pandemic, it probably isn’t that likely. Either way, this may be something that the tenant is unaware of and is worth exploring with a landlord should this be seen as the tenants only option.
Will my business Insurance cover me?
It is definitely worth reviewing your business insurance policy or speaking to your broker or insurer directly. Some policies include business interruption cover but this may only be in place where there is damage to property or where government action has meant that it is illegal for premises to remain open. In many cases, cover for infectious diseases will have been an opt-in extra and most will require the disease to have been classified as ‘notifiable’. The UK government’s declaration on 5 March 2020 that COVID-19 is a notifiable disease will assist in such cases. There have been reports of insurance companies trying to get out of their obligations so it is worth reading your policy very carefully.
How we can help
We have a proven track record of dealing with and advising upon commercial leases. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
How to Contact our Commercial Property Solicitors
It is important for you to be well informed about the issues and obstacles you are facing. However, expert legal support is crucial in terms of ensuring you understand fully the options available to you.
To speak to our Commercial Property solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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