Lease Payments [COVID-19]
Posted in Licensing | May 01, 2020 | by Dadds LLP Solicitors
The COVID-19 outbreak has amounted to a radical and unforeseeable event which has disrupted the business of many licensed premises; public houses, wine bars, restaurants, hotels and members clubs to name but a few.
To reduce social contact, the government has ordered businesses and venues to close and both landlords and tenants have had to encounter this new and evolving challenge and consider how to meet their leasehold obligations. Most tenants have been unable to generate income to pay their rents as the doors are closed, and some landlords have been unable to pay their financial commitments as they cannot collect rent.
As such, we have been considering the question - which party should burden the financial liability and risk during this forced period of closure?
This question has caused landlords and tenants to review their leases so as to best determine their next course of action, if any. They are considering what opportunities may be available to reach a compromise that facilitates both the landlord’s and tenant’s ability to work with all their related parties, for example creditors and customers in a rational way whilst protecting future relationships.
We have managed to reach agreements for some of our clients by obtaining a rent free period, and for others have arranged for both the landlord and tenant to share the rent burden. Some landlords are, however, asking the tenant to pay the entire rent during this period of closure, (whilst the premises itself is unusable) as well as expecting the tenant to continue with their obligations under the lease (such as it may be) for example the duty to insure and repair.
We do appreciate however, that this is a finely balanced exercise and that as well as protecting the needs of the tenant, passing the whole burden onto the landlord, on the other hand, depriving them of all the rent, may be disproportionate.
During the closure, the lease and premises is rendered objectively useless and this is through no fault of either party. Neither the landlord nor tenant could reasonably have contemplated that at the time of signing the lease the government would have ordered the business and premises to close for a sustained period of time. We are also confident if this had been known the tenant would not have been expected to pay the rent in full during this time, i.e. no use, no customer, no rent!
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