Changes to Commercial Leases After Covid-19

With many UK industries returning to business as usual, commercial tenants have been expected to do the same with payment of rent under the conditions of their commercial leases. However, with reduced profitability and continued financial insecurity, many traders are finding themselves unable or unwilling to return to regular rent payments, putting themselves as well as their landlords at risk.

Recovery measures for commercial traders have included cutting down opening hours and staff numbers, shifting to e-commerce, and even complete store closures – initial short-term solutions which will continue to affect businesses for months to come. In anticipation of these developments, at the start of the pandemic the Government promptly introduced the Coronavirus Act 2020, which includes temporary statutory changes to the operation of commercial leases.

How does the Coronavirus Act 2020 affect leases?

The passing of the Coronavirus Act on 26 March 2020 presented several amendments to commercial leases in the UK, which at the time of writing are applicable until 25 March 2022. One of the most significant is the suspension of the right for landlords to forfeit a commercial lease for non-payment of rent by tenants, though they can still demand rent and issue proceedings as before.

Commercial rent arrears recovery (CRAR) has also been limited by the legislation to prevent the recovery of possessions in place of missing rent, while statutory demands and winding up petitions have also been suspended until 1 October 2021 if a tenant cannot pay due to Covid-related losses.

How Can Landlords Support Tenants?

Rent concessions have become widespread for commercial leases. They are often agreed privately between landlords and tenants depending on individual circumstances related to the financial impact of the pandemic. While this has inevitably led to a lower income for landlords, it can prove more cost-effective in the long run compared to the cost of re-letting a property in a tenant-led market.

While the new legislation imposes a number of restrictions on landlords, it does not include any automatic entitlement for rent reductions or holidays for tenants, though this may change with future legislation. As with any amendments to commercial leases, it is important that they are confirmed and mutually agreed in writing, ideally with the guidance of a legal professional.

A Code of Practice has also been issued to support commercial property landlords and tenants for use during and after the pandemic. Compiled by specialists and created to advise both sides, it is available for free on the Government’s website and will remain effective until 25 March 2022.

How Can Your Local Solicitor Help?

For landlords and tenants signing a new commercial lease or continuing an existing contract, it is strongly advised that they seek expert legal counsel to ensure the agreement is lawful and fair. At A M Davies, we have experience of commercial leases and licences of all types and can help with your concerns. Find out more on our website or contact us directly.