Member Article

Property lawyer on retailers not paying rent

In the wake of high-profile retailers such as JD Sports and Primark not paying rent to landlords amid the lockdown, Linden Talbot, Associate – Commercial Litigation, Trethowans, comments:

“The Coronavirus Act 2020 does not waive or defer business tenants’ obligation to pay rent, it just means that landlords cannot force them to vacate premises for non-payment between 26 March and 30 June.

“Landlords can charge interest on unpaid rent, draw on a rent deposit or undertake other actions as per the terms of the lease. Also, the act does not protect businesses with non-existent takings that cannot pay their rent when the moratorium ends, so does it go far enough?

“It is unlikely that tenants could claim a rent reduction by right where they are unable to use premises because lease force majeure clauses are unlikely to cover Covid-19. The obligation to pay rent is usually only suspended where the premises suffers damage or destruction that makes it unusable.

“However, a rent reduction may be suitable for negotiation in some scenarios and could be considered alongside rent deferrals or suspensions. Also, where a lease prescribes a ‘turnover rent’ – where rent is defined as a proportion of business turnover (common in the retail sector), these are likely to be significantly impacted by premises closure.

“It is also unlikely that tenants could argue that their lease has been frustrated due to a temporary inability to occupy the property. The bar for frustration is high and tenants must show that a supervening event has altered the parties’ obligations so significantly that the lease is ended. The coronavirus situation in the UK is unlikely to meet this test. However, there may be break clauses within the lease than tenants may exercise given the current climate.

“It is critical that landlords and tenants talk, openly and honestly, about their individual situation as early as possible to agree terms for potential rent suspensions or deferrals. This avoids costly disputes further down the line.”

An experienced lawyer, Linden specialises in property litigation, including forfeiture, and is a member of the Property Litigation Association.

This was posted in Bdaily's Members' News section by Trethowans .