The pandemic has not been easy. Its effects are continuing to manifest in all aspects of life, not least the insecurity felt by those renting, or landlords unsure of their rights in this unprecedented time. Job losses and ability to pay rent has been a particularly salient issue, as well as businesses struggling to meet rent in accordance with their lease due to forced closures and loss of revenue.
A commercial lease allows a business tenant to use the property for purely business purposes, such as a retail let to operate a shop, bar or restaurant. As businesses were forced to close during the height of the government lockdown, with many still closed or struggling financially, meeting the rent on commercial leases has been a cause for concern.
There are various elements of a contract that permit for ‘unexpected’ events, and can allow a party to terminate the contract, or delay performance (paying rent), most commonly in the form of a ‘force majeure’ clause. The clause specifies specific events that may affect contract performance, and whilst the COVID-19 outbreak is unlikely to be specifically included, you should read your agreement carefully to see if it contains a force majeure, and whether the pandemic and government lockdown would fall into the categories mentioned.
Alternatively, pleading frustration would relieve the tenant of their rent obligation if the contract becomes impossible or illegal to perform, or if the overwhelming purpose of the contract has vastly changed. It is extremely difficult to plead frustration, and the government lockdown is unlikely to be sufficient to frustrate the contract, however this would largely depend on individual circumstances and the terms of the agreement.
If the business tenant is unable to pay the rent, commercial landlords are not permitted to forfeit commercial leases or evict the tenant for non-payment of rent between 23rd March 2020 and 30th September 2020, as instructed by the UK government. This provides some security for businesses as they adapt to the struggle the pandemic has presented, though communication with the landlord is advised to promote good business practice as it is unclear whether the government will choose to extend this protection beyond September.
Residential tenancy agreements
A residential tenancy agreement allows you to live in the property in return for paying rent, and following any rules set out in the agreement. With rising unemployment and many affected by the furlough scheme, renters may find themselves in financial arrears. Whilst force majeure clauses are more common in commercial leases, tenants should nonetheless check their tenancy agreements to see if such a clause is in effect, and whether the pandemic could be included in the circumstances laid out.
Frustration is highly unlikely to be successful in tenancy agreements, on account of the fact that the tenant generally takes on the risk of being unable to pay rent when signing the agreement. The recent controversy over student accommodation, namely the requirement for students to continue paying rent, despite not occupying the premises due to universities operating with ‘remote learning’. It has been suggested that this will not frustrate the rental agreement, as where students choose to carry out their remote learning is a personal preference that is not due to impossibility, illegality or drastic change in circumstances (though this may be sufficient for university owned accommodation).
If the landlord wishes to order a ‘notice to quit’ (evict tenants and retain full possession of the property), the government have introduced further protection for tenants, by demanding a 3 month notice period for all notices from 26th March 2020 until the 31st September 2020 due to the pandemic. In Wales, this period has been further extended to 6 months until the 30th September. The landlord is entitled to serve notice for numerous reasons, depending on the type of rental agreement in place. Most commonly, notice is served because the tenant is behind on rental payments, the property is being used for illegal activity or the landlord wishes to move back into the property. During the notice period, tenants are entitled to remain in the property and all notices given should provide a date on which the tenant is required to vacate the premises.
If you are behind on rental payments, or if your ability to pay rent has been affected by the pandemic, it is advisable to talk to your landlord and ask for a payment holiday or reduced rent. Many landlords have been understanding to their tenant’s situation where it is financially viable for them to do so, but it is important that should you come to an agreement, that you formalise this in writing. For tenants who are worried about being served notice beyond the 31st September, communication is especially important as there is no indication as of date that the government intends to extend the 3 month requirement any further.
Ultimately, the integrity of rental agreements has been largely upheld during the pandemic, however for tenants in particular this has led to potential stress, as there is a struggle to maintain fairness to both landlord and tenant. The lack of flexibility has been understandably disappointing for some renters, however for landlords that would struggle to find new tenants in the middle of a UK lockdown and time of economic insecurity, the rigidity of rental agreements is very much welcome. During the crisis, communication between landlord and tenant is key, and understanding of the financial needs and limits of both parties can help to maintain good professional relations.