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Coronavirus and the March Quarter Day – An Urgent Landlord and Tenant Update
At a glance
Yesterday evening, Prime Minister Boris Johnson announced an unprecedented set of social measures intended to stem the advance of coronavirus in the UK. Chief among these was the immediate forced closure of all shops selling non-essential goods but, in a less publicised announcement, the Government also confirmed its plan to implement a three-month ban on forfeiture by commercial landlords. Here, our real estate litigation team assess the legal impact of these measures ahead of the impending 25 March rent quarter day.
First and foremost, it is crucial for tenants to understand that, notwithstanding the closure of their premises, rent continues to fall due for payment. Perhaps surprisingly, the tenant’s ability to trade from its premises is not considered fundamental to the landlord/tenant relationship; the tenant still “owns” the lease, to the exclusion of all third parties, and is therefore liable to meet its rent obligations whether or not it can open for business.
Of course, this will need to be viewed in the context of all other legal and commercial considerations, the most significant of which are considered below.
Many commercial leases – particularly those in the retail and hospitality sectors – contain “Keep Open” clauses. As the name suggests, these clauses oblige the tenant to keep their premises staffed and open for trade during the normal operating hours of the wider shopping centre, parade, or district in which they are located. Such clauses are generally found where the landlord controls a number of units in that area, and wishes to ensure continuous footfall (and, thereby, a minimum rent yield).
Whilst there is long-standing legal authority that a landlord cannot obtain an injunction to force a tenant to trade, it remains possible for a landlord to claim for damages if a tenant breaches the Keep Open covenant. As such, tenants will be naturally concerned to know whether closing their doors at the Government’s request will expose them to enforcement action by their landlords. The answer to this is likely to be found in another common lease clause, often termed “Statutory Compliance”.
These clauses require tenants – rather than landlords – to comply with all laws and regulations applicable to their premises. Although broad in scope, these clauses are most commonly concerned with issues such as planning, environmental health, fire safety, food hygiene, and building regulations. However, in the current climate they would also extend to complying with a Government-imposed “lockdown”.
Clearly, there is a conflict between the two types of clause – one requiring the tenant to remain open, and the other requiring them to close down. For this reason, most Keep Open clauses will provide a specific exemption if the closure is a legal or regulatory requirement. Even if there is no such exemption in the clause itself, it is very likely that the law would imply one to give efficacy to the lease as a whole.
Moratorium on forfeiture
Although the extraordinary social constraints will naturally attract most media attention, a press release made yesterday with little fanfare will be of enormous significance to both landlords and tenants looking with trepidation towards tomorrow’s March quarter day.
For an initial period of three months (until 30 June), commercial tenants who cannot pay their rent because of the impact of coronavirus will be protected from forfeiture action by their landlords. This is an extension to similar measures already announced in relation to residential tenants.
There are, however, some critical details to note.
Firstly, the moratorium does not mean that rent falling due during the moratorium period is no longer due for payment – simply that the landlord cannot forfeit the lease if it goes unpaid. This means that the landlord can still avail itself of all other remedies, such as petitioning to wind up or bankrupt the defaulting tenant, or instructing bailiffs to recover the debt by seizing and selling the tenant’s goods.
Secondly, on its face the moratorium is stated to apply only to missed payments of rent. However, the draft Coronavirus Bill currently being fast-tracked through Parliament defines “rent” in this context as including any sum payable under the lease, so would include ancillary amounts such as service charges and insurance rent.
From a landlord’s perspective, the draft Bill also usefully clarifies that nothing done during the moratorium period will be capable of waiving the right to forfeit – so a landlord will be free to continue invoicing for sums falling due and can otherwise engage with the tenant in the usual way. The only exception is if a landlord provides an express written waiver, which it may wish to do on purely commercial grounds.
If you would like to discuss any of the issues covered in this article or if you require any advice with regard to your own particular circumstances, please email email@example.com or get in touch with your Memery Crystal contact.