18 March 2020

Coronavirus: What effect will this Covid-19 pandemic have on tenants' leasehold liabilities?

Given that leases do not contain force majeure clauses, and they will not be frustrated by any temporary restriction or inability to occupy the premises, tenants and guarantors will remain bound by their lease obligations and, in particular, their liability for the rent.

Unless Covid-19 is covered as an Insured Risk, which is unlikely, payment of rent will not be suspended.

Many tenants will be seeking rent suspensions or credits to allow their businesses to continue and care must be taken not to vary any lease without the consent of any guarantor as any material variation could release any security.

Going forward, Covid-19 may well affect rental values and this will no doubt raise various issues in relation to both past and future rent reviews. Clearly, keep open clauses in retail premises may well be breached.

Unfortunately, tenant default and insolvency is bound to increase substantially with this PDF document setting out a snapshot of the options available to a landlord under the four most commonly used insolvency procedures.

Some of the procedures outlined within the document impose a moratorium on landlords, restricting the actions they are able to take. We would advise taking early advice in relation to any tenant who you suspect is, or may be, about to enter an insolvency procedure. There may be steps a landlord can take to protect its position or challenge the process, or mitigate its position once the process is underway.

If you have any queries, please contact any member of the Property Litigation team at Forsters.

Disclaimer

The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

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