COVID-19: What next for commercial leases?

What is the future for commercial leases following the COVID-19 crisis?

The present position is that whilst many businesses have been forced to close, they are still liable to pay rents. If tenants do not pay their rents, landlords are presently precluded from forfeiting their leases.

These are short term issues and the government has encouraged landlords and tenants to work together to keep the position steady whilst the crisis lasts.

There have been suggestions that some leases should be considered “frustrated”, namely incapable of being performed. The Coronavirus Act makes no such provision and  the tenor of the Act is to maintain existing contracts between landlords and tenants.

What will happen in the longer term?

Some businesses simply won’t survive the emergency measures. They will cease trading, go into administration or even liquidation.

Other tenants may not require the same footage, on the basis that their business has either been forced to downsize or because they have assessed that they can operate more efficiently and economically with less space.

If the availability of properties for rent exceeds the demand, this is likely to drive down rents.  Landlords need to plan ahead. What business is being carried on by their tenant? Can it survive lockdown? What is the realistic prospect of letting the unit as a whole? Is it necessary to permit subletting or sharing occupation? Is redevelopment a better option?

Simon Tucker and other lawyers in the team have significant expertise in insolvency issues facing both landlords and tenants. Simon can by be contacted via email st@debenhamsottaway.co.uk or on 01727 735662.