Q: I need to close my business premises because of COVID-19, do I still have to pay the rents to my landlord?
Generally yes, but you should first:-
- Identify what factors are contributing to the closure of your business premises. For example:-
- Your business is among those “non-essential business premises” according to the government’s present guidance – for example, restaurant, café, retail (there are exceptions) and/or other business within the “retail, hospitality and leisure” sectors;
- Your employees cannot come to work due to COVID-19, and hence you cannot carry out your business on the premises;
- The Landlord has closed the entire or part of the building, and because of this you have no access to your business premises; and/or
- You are financially unable to continue operating your business.
- Re-read your lease to see if any of the above points relate to any provisions in the lease; and
- Check your business insurance provisions and see what cover is available and if your insurance can cover your rental payments.
Q: The Landlord insures my business premises under its building insurance. Would it not cover the present COVID-19 situation to alleviate my rent payment obligations?
Probably not, but you should check the insurance policy documents closely.
Many leases contain some rent-suspension provision in the event when insured risk occurs and the premises become inaccessible or unfit for occupation. Such insured risks often include fire, explosion, lightning, earthquake, storm, flood, bursting and overflowing of water tanks, apparatus or pipes, impact by aircraft and articles dropped from them, impact by vehicles, subsidence, ground slip, heave, riot, and civil commotion. The Landlord might opt to include other perils in its business insurance package. I have not seen it myself amongst an insurance risk for a building, but there may be other named risks that will be applicable, such as ‘pandemic’ or ‘epidemic’.
Q: I have heard of the term “force majeure”. Can this apply to me with my business premises and not to pay the rents?
In a commercial lease, we often see the provisions for a “force majeure” event (when one party is prevented or delayed from performing its contractual obligations due to unforeseeable events), providing some form of release in the circumstances. What would constitute a force majeure event depends on the wording in the lease, and a party claiming a force majeure event has to demonstrate that the lease obligation is incapable of being performed due to an unforeseen event. It would be difficult for a tenant to claim that non-payment of the rent is a force majeure event.
Q: What do you suggest then?
If you are struggling to continue paying the rents as per the lease, I suggest you consider the following option(s):-
- Be honest with your landlord and discuss and agree an achievable solution (such as temporarily reducing the rent). It is important that the terms of such agreements be documented in writing in a clear and succinct manner;
- Apply for government grant – for example, see Financial support for businesses during coronavirus (COVID-19) – GOV.UK (www.gov.uk);
- Check your current insurance polices and see if they can assist you in any way;
- Agree a “payment holiday” with your lender (if applicable) – Please note, however, that the interest may continue in the meantime and you will have to make up the missed payments at the end of the payment holiday; and/or
- Research on an affordable business loan and assess if taking such a loan might be more cost-effective.
There will also be business rates holiday for some sectors (currently suggested for retail, hospitality and leisure sectors in England) for the 2020/2021 tax year, for which the government’s guidance says there is no action is required.
At Cognitive Law we would be very happy to review your lease and supplementary documents and/or to assist you on your commercial property issues. Please feel free to drop me a line at mayumi.hawkes@cognitivelaw.co.uk or ring me on 020 3034 0501.