I have received a number of enquiries from Commercial Landlords asking if their Tenant is entitled to withhold rental payments during the current COVID 19 crisis. Many businesses have closed due to government requirements or lack of business.
In order to answer the question comprehensively in each case the Lease would need to be reviewed. A commercial lease is a contract and as such creates obligations between the Landlord and Tenant. The current trading difficulties have not suspended or altered in any way the contractual obligations of a Tenant to Landlord.
In general, there are very few circumstances where payment of rent is suspended during the term of a Commercial Lease.
As a Landlord you should consider whether the Lease contains a Force Majeure clause. Such a clause could provide that one of the parties is excused from complying with their contractual obligations if a specified type of event occurs. The type of events covered are those which are outside of our control and which make the completion of our contractual obligations impossible. It would be unusual for a lease to provide a force majeure clause particularly in relation to the payment of rent.
If your Tenant requests a rent reduction or rent abatement during this time, it is critical that the agreement between you is properly recorded to ensure that there is no misunderstanding on either side in respect of what is actually agreed.
In considering a rent reduction/abatement you may want to consider:
- Is the rent simply deferred?
- Will the rent reduction/abatement be withdrawn if there is a breach of another covenant of the Lease?
- How long will the reduction/abatement continue?
- How will the reduction/abatement affect the next rent review?
Accurately recording the agreement and the intended impact of the agreement on the Lease should avoid costly litigation afterwards.
If you have used the property as security, you will need to obtain the consent of your Lender to the variations.
If your Tenant has, without agreement, stopped paying rent, you have a number of options to consider:
- Seek payment of the outstanding rent , which may require you to issue proceedings;
- Has there a breach of any other covenant?
- Are you in a position to use the deposit provided?
- Are you in a position to forfeit the lease?
- Is there a personal guarantor which you may pursue for the outstanding rent?
These are difficult and unusual times. If you would like any further advice on your commercial lease please contact Caroline Meaney on 061 414355 or [email protected]