Commercial Property and Covid
Commercial property tenants facing temporary financial hardship due to Covid-19, may opt to approach their landlords to discuss assistance. That’s according to Orpen Franks Solicitors LLP commercial property expert, Fionnuala Murphy.
Commercial Property Issues and Tenants
Ms Murphy says there are several issues tenants seeking concessions should consider. These include the following:
- Be clear about why the concession is needed;
- Support your request with financial information;
- Financial details should address both the tenant’s business and the commercial property unit in question.
“Clarity around parties’ obligations under a lease is vital to avoid disputes,” says Ms Murphy . Failure to comply with a term or terms of a lease, is a “breach of covenant”. “Tenants in breach of covenants (e.g. payment of rent) could have a judgment registered against them. Indeed, they may find they are forced to vacate the property on foot of an order for possession.”
Most business owners occupy their premises on foot of a commercial lease. The lease constitutes the contract between the landlord and the tenant. A proper understanding of the terms and obligations in a commercial lease is always essential. However, it is even more important in the pandemic, as parties face decisions to close or re-open commercial premises. “How are fixed costs such as rent, rates, loan repayments to be met in the absence of liquidity? “
Parties entering new leases in the shadow of Covid-19 need to consider what additional clauses should or can be negotiated. “Such additional clauses might include modern termination or “get out of jail” provisions,” says Ms Murphy.
”Any lease can be terminated by agreement or by default such as non-payment of rent. However, tenants must bear in mind that default may not be a cost-free option. This is particularly the case where a guarantee was provided. Landlords may be entitled to seek redress or payment from a guarantor where a tenant defaults.”
Commercial Property Issues and Landlords
“It’s important to bear in mind that landlords also have financial obligations,” says Fionnuala. “They rely on rent to discharge these obligations. Landlords may not have received any relief in relation to their financial obligations. As a result, they may be limited in the flexibility they can offer a tenant,” cautions Ms Murphy.
“The relationship between landlord and tenant is a legal matter. So, parties are best advised to seek legal advice on new arrangements. Where appropriate, they should also ensure revised terms are correctly documented.”
Negotiating Commercial Property Outcomes
“Some parties require assistance to reach a negotiated outcome and you need look closely at the lease in these cases. Sometimes a negotiated outcome is not feasible, If so, then the lease can also be reviewed to establish if it contains provision for alternative dispute resolution. Is there merit in agreeing the appointment of a third-party mediator? In such mediations, each side generally bears their own costs.”
“Covid or NOT, active and coherent communication to find common ground, will mitigate against wasteful and costly legal disputes.”
For advice or assistance on commercial property issues, please contact Fionnuala Murphy by email at: email@example.com
The contents of this blog were first presented to the IPAV Lettings Conference on 20th November 2021.