New lease rules do not guarantee rent holiday

Many are wondering what their obligations are to landlords during the coronavirus lockdown. Guy Gowi

Many are wondering what their obligations are to landlords during the coronavirus lockdown. Guy Gowing explains Picture: Getty Images/iStockphoto - Credit: Archant

The coronavirus lockdown has raised some questions about tenants’ obligations to pay rent. Guy Gowing, managing partner at Arnolds Keys, offers some expert advice.

A commercial property lease is a legally binding agreement entered into in good faith that obligates the tenant to pay the rent that is due in return for occupying the building.

In normal times, that statement would be unremarkable. But these are not normal times – and many of the principles upon which the commercial property market is built are being set aside.

Last week, the government changed the law so that landlords – unable to force the forfeiture of leases due to non-payment of rent until at least 30 June – cannot use other methods such as statutory demands and winding up orders to recover unpaid rent.

Some commentators have decided that this means tenants have in effect been given a three-month rent holiday, with examples of occupiers announcing unilaterally that they are not going to pay rent when it is due because of interruptions to employment resulting from the coronavirus and subsequent lockdown.

It is true that businesses that are not trading at all or whose income has been severely impacted by the crisis may be struggling to find the money to pay what is due. But landlords are businesses too, and they rely on rental payments to pay their own costs. Simply withholding the rent just passes the problem on.

It is worth mentioning that when rent is not paid, the obligation to do so has not gone away. Once the crisis is over tenants could face immediate demands for overdue payments, which could jeopardise their ability to get back on their feet.

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This is why dialogue is vital. Tenants are advised to engage in conversation with your landlord to try and find a pragmatic way forward. Equally, landlords are going to have to think long-term – being heavy-handed in a way which will risk the long-term future of their tenants is hardly going to help. Finding creative solutions, such as offering a rent holiday in exchange for an extension of the lease period, is going to be necessary. Avoiding knee-jerk reactions in the short-term – by landlords or tenants – will be the key to ensuring that business runs smoothly once again after the lockdown is lifted.

Guy Gowing is managing partner at Arnolds Keys