183: Do I have to continue to pay rent to the landlord if I am forced to close due to government regulation?
Each tenant should check their own lease terms to see whether there is any wording covering this eventuality. Whilst most leases provide for rent to be suspended if the property is damaged by an insured risk (and sometimes by an uninsured risk), most leases are unlikely to include wording suspending the rent in the eventuality that they are not permitted to open due to the government requiring shops, restaurants etc to close.
A concerned tenant should therefore check their business interruption insurance to check whether they will be covered for any rent they have to pay whilst the premises are closed. The situation is unprecedented in the UK however and it may be that some insurers determine that closure due to COVID-19 is what is termed a ‘force majeure’ event and therefore will not cover this loss.
We are in unchartered territory, but it possible that landlords will be willing to offer concessions to tenants who are badly affected (whether due to closure or reduced custom). Examples could be a payment holiday, a shift to monthly rent payments and / or a reduction in the rent payment.
Unless a landlord has been waiting for an opportunity to take back a leasehold property, we suspect that many landlords will be unwilling to forfeit a lease (that is serve a notice on a tenant for a breach of the lease or change the locks due to non-payment of rent) as they are unlikely to be able to relet the premises immediately and will have a void (on which they will have to pay business rates). Furthermore even if a landlord does forfeit a lease for non-payment of rents, we don’t know what approach the courts are likely to take if a tenant applies to the court for their lease to be reinstated (called ‘relief from forfeiture’).
We would therefore recommend that tenants who are expecting to struggle with rent payment make early contact with their landlord to negotiate a concession. We recommend that you keep a record of all such negotiations (this may be useful to demonstrate that you have acted reasonably to a court). This should be documented by a side letter or potentially a deed of variation, in each case binding on both parties.
My lease contains a ‘keep open’ provision: what are my obligations?
Some leases include an obligation on a tenant to keep their shop open during normal trading hours. If your lease contains this provision, you should check the clause carefully. Some landlords have agreed carve outs to this keep open provision whereby the tenant is not on the hook to open in certain circumstances (for example where obliged to close due to government legislation).
Recent case law means that landlords are unlikely to be able to force a tenant to open even where the lease contains a keep open clause. However, a landlord does still have the ability to claim damages for breach of contract. Some landlords have also insisted on a clause in the lease whereby the tenant pays a penalty to the landlord for every day that they do not open, and again you would need to check the terms of the lease to see when the penalty would apply. If you are renegotiating your rental payments with a landlord it may be prudent to also agree that any keep open provision (and related penalty) will not apply during any forced closure due to COVID-19.
We recommend that you seek legal advice from a property lawyer at an early stage to make sure that any concessions are properly documented and are legally binding.