Following the World Health Organisation’s recognition of Coronavirus (COVID-19) as a worldwide epidemic, the UK government has been forced to take action to prevent the spread of the disease. We consider below the financial effect this will have on UK businesses and advise on options available to commercial lease tenants that may help keep their business afloat.
The government advice on Monday is likely to cause huge financial pressure to restaurants, pubs, bars and hotels across the country as the public are urged not to go out and socialise. Businesses will be questioning how they might survive this period of uncertainty and undoubtedly will be taking financial advice.
Commercial leases are unlikely to include provision for rent suspension in circumstances of a health epidemic and tenants will be left to try and negotiate a rent-free period or discounted rent with their landlord. Tenants should look to consider bringing their lease to an end early (if their lease allows) as this will alleviate some of the financial burdens such as rent, service charge and insurance payments due under the lease.
Where a commercial landlord is unwilling to offer a rent-free period or discounted rent, tenants may be faced with a decision to try and extricate themselves from their lease before arrears start to accrue. A review of the lease will determine whether it can be brought to an end without having to wait until the end of the term. In some commercial leases, a “break clause” is included where the lease is on a fixed term basis which allows either party to end the lease earlier. Some break clauses are on a rolling basis which allows either party to exercise their right to bring the lease to an end at any point during the term, but others have conditions attached which only allow parties to exercise the break clause at certain ‘trigger’ points during the term. We would advise tenants to ask a solicitor to review their lease without delay to ensure they do not miss the opportunity to exercise their break if there is an imminent trigger date.
Break clauses will usually have conditions attached which will have to be strictly adhered to when exercising a right to break. Conditions can include, but are not limited to, the following:
- All payments due under the lease are paid up to date
- Vacant possession must be given i.e. the property must be returned to the Landlord empty
- The tenant is not in breach of any covenants under the lease including any covenants to repair the internal or external parts of the building
- Where the landlord is looking to redevelop the premises, the landlord may include a break clause to allow them to bring the lease to an end to
As highlighted above, the majority of break clauses will require all rent and other payments to be up to date before the break clause can be exercised. Now would be the time for tenants to consider bringing their lease to an end whilst (hopefully) their business has not already been too affected by Coronavirus and their rent payments are up to date. Further, some leases only offer one opportunity to break and if the break date is missed, tenants will be faced with continuing to meet their obligations and covenants under the lease, including all rent payments, until the end of the term.