Rent Reduction during the Covid-19 lockdown: Advice for charity and commercial tenants
Charitable and non-charitable organisations alike are seeing a downturn in their income as a result of the recent lockdown put in place to combat the spread of Covid-19. For tenants of commercial property, rental payments are often their most significant regular outgoing, and a reduction could go a long way to easing cash flow issues. For landlords, a tenant’s cash flow issues can in turn cause problems with their own income.
The Coronavirus Act 2020 came into force on 26 March, and includes extra protection for tenants of commercial property who are struggling during the lockdown. Section 82 of the Act deals with protection from eviction for business tenancies in England and Wales and prohibits enforcement of a right of re-entry or forfeiture for non-payment of rent until 30 June. It is accepted that, although section 82 does not reference them directly, the same provisions apply to charity tenants as well.
However, the level of rent reserved by leases of commercial property is contractual, and not something the Government can legislate for. It is therefore vital that the parties enter into a dialogue as soon as possible to come to an agreement that suits everyone. Possible considerations include:
- A reduction in the rent for as long as the lockdown is in force, or until such time as the parties agree between them. It is expected that the lockdown measures will be lifted on a rolling basis, so some tenants will be able to resume full rental payments sooner than others;
- A rent free period for as long as the lockdown is in place;
- An agreement to defer the rent, where unpaid rent is to be repaid later, either with or without interest, in accordance with terms the parties agree between them; and
- An amendment to the rental payment terms. For example, a tenant could benefit from monthly payments instead of quarterly.
For charities, there are some additional considerations. For charity landlords, the trustees have a duty to ensure that they achieve the best level of rent reasonably obtainable for the charity, so agreeing a reduction without proper advice and consideration could be deemed a breach of this duty.
For charity tenants, the Charity Commission has published guidance to state that trustees need to think about the long term effects on the charity if some or all of the rent is not paid during the current situation, such as future cash flow issues if their landlord demands repayment of arrears after the lockdown is lifted.
It therefore is advisable for charity trustees to:
- take advice from a qualified surveyor as to what they can realistically either pay to their landlords, or accept from their tenants, during the lockdown;
- negotiate the best position they reasonably can under the circumstances;
- document any changes in the level of rent or payment terms immediately, which is something PWW Solicitors can help with; and
- keep the arrangement under ongoing review, in case circumstances change. If you would like to discuss an arrangement you have in place, or get further advice on the options available to your business or charity, please contact us here and we would be happy to assist.
