By David Haines, Partner, Charles Russell Speechlys and Ingrid Saffin, Partner, Charles Russell Speechlys (www.charlesrussellspeechlys.com)
Pressure on businesses is at an all-time high, as hotels, restaurants, and hospitality venues up and down the country are forced to keep their doors shut in continued national lockdown.Thanks to the rent moratorium, the risk of eviction is not currently a threat to businesses, but this could all change shortly.
The ban on forfeiture due to non-payment of rent under commercial leases was extended until 31st March. Whether or not this will be the final extension is unclear, but if the ban ceases to exist, 1st April will be crunch time for many commercial landlords and businesses.
Published last June, the voluntary COVID-19 Code of Practice was intended to reinforce and promote good practice amongst landlord and tenant relationships as they deal with the impact of the pandemic.Yet tenant- landlord disputes have seen a sharp increase, often due to a lack of communication or unreasonable expectations of one or both parties.
Now, with the end of the ban on evictions in sight, many may find themselves in difficult situations.We offer some advice to businesses in the hospitality sector worrying about what’s to come.
WHAT CAN TENANTS DO NOW?
Communication is absolutely key.We advise businesses who have not done so already to initiate an open dialogue with their landlords without delay.The ban on forfeiture has given many commercial tenants a temporary way out of insolvency to defer difficult decisions, but it is important to remember that landlords have not been given the same protections.
Even when businesses have been able to reopen, many have been operating at limited capacity with significantly reduced revenues.Tenants should be clear and transparent about this, as landlords may not know the tenant’s financial situation and could assume otherwise if not explicitly told. Establishing an open and communicative relationship is of immediate importance.
The next few weeks leading up to the end of March will be a critical time for landlords and tenants to agree to terms which work for both parties.Where possible, businesses should try to get deals documented to ensure certainty, rather than relying on verbal agreements or vague written exchanges. It is important for ten- ants to understand the implications of the lifting of the ban on forfeiture and the subsequent financial repercussions, taking into account accrued rent over the past twelve months.
Businesses in the hospitality sector should also make themselves aware of the changes and consider how they can take advantage of government schemes and initiatives. For example, a one-off lockdown grant was announced by the government at the start of the UK’s third lockdown. Businesses should look at their finances and calculate how much they can afford to give back to their landlords in unpaid rent. If they are unable to provide any payment to landlords, it is important to give adequate justification now.
Landlords will expect tenants to have explored all sources of financing and are more likely to respond favourably to tenants who engage now rather than those who do nothing prior to 1st April. It is to be remembered that the moratorium is only a temporary solution – the rent accruing under commercial leases is still due and payable.
Lastly, throughout the negotiations, tenants should remember that whilst the ban on rent collection may be coming to an end, the COVID-19 Code of Practice, which aims to preserve the livelihoods of both the land- lord and the tenant, still applies. During these difficult and unprecedented times, landlords will be as accommodating as they can be to tenants who engage and communicate honestly and fairly.