Unprecedented times call for unprecedented measures and with the Prime Minister implementing an official lockdown, fears have been growing for what this means for, in particular, commercial tenants whose cash flow has diminished and who are unable to meet rent demands putting them at risk of eviction. As an update from my last blog which touched on general advice for commercial tenants, the Government has now built on their previous support package specifically announcing protective measures for commercial tenants.
What has the Government put in place?
In a nutshell the Government has announced that over the next three months all commercial tenants unable to pay their rent as a direct result of the impact of Covid-19, will be protected from eviction. These new measures will be added to the emergency Coronavirus Bill currently making its way through parliament and aim to provide comfort much sought after by small businesses facing financial difficulty in the wake of this pandemic.
In its announcement the Government also recognised that commercial tenants will still be liable for rent after this moratorium period ends. Whilst many landlords and tenants have been entering into constructive conversations to facilitate voluntary arrangements, many tenants have simply demanded a cessation of all lease liabilities, without engaging in any discussions.
The Government will also need to deal with the impact this initiative will inevitably have on commercial landlords’ cash flow and has indicated it is aware of the need to ensure the correct balance is struck and to adopt an approach which does not penalise landlords by providing disproportionate assistance to tenants. Also this does not affect the need for landlords to regain possession as a result of other tenant breaches.
Therefore, whilst these measures are good news for a tenant’s current cash flow, the knock-on effect will see some landlords struggle to service their loan repayments and pay interest due on any lending secured over property. Some landlords can afford to shoulder this temporary halt in income, but many smaller private landlords may run the serious risk of being in breach of their banking covenants. In these circumstances, some landlords will be forced to renegotiate the terms of their banking arrangements with their banks.
These measures will build on the unprecedented support packages currently being rolled out to businesses across the board and should provide some comfort in this area. The change will apply to all commercial tenants in England, Wales and Northern Ireland and will come into force when the Coronavirus Bill receives Royal Assent. The current proposal is for this ban on evictions to last until 30 June, with an option for the Government to extend if needed.
It remains unclear how this will be implemented or what the application process will be at this stage, but we would hope to see some clarification once the bill has gone through. However, the message is that no evictions of commercial tenants can take place if the reason for the eviction is inability of payment due to the Coronavirus.
If you have any questions specific to a lease that you are currently occupying a premises under or you are negotiating a new lease and would like legal advice tailored for the ongoing public health situation, please contact Stephen Brower or another member of the Edwin Coe Commercial Property team.
For an update on all the legal implications relating to coronavirus please see here.
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Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
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