Rural commercial property and Covid-19 options for landlords
Over the years many farm businesses have diversified and a number will now have commercial lettings where redundant farm buildings have been converted into office, retail or workshop space. In a number of instances tenancy agreements may have been made informally or not been reviewed for a number of years. The current crisis may cause difficulties and uncertainty for a number of reasons, but especially where tenants are suffering business losses and cannot pay their rent, have asked for a rent reduction or holiday or have asked to forfeit the property and return the keys.
As a landlord, what is the best way to approach these different scenarios and what options are available?
In the first instance you should check if there is a tenancy agreement in place and if that details any circumstances where the landlord is obliged to grant a rent holiday, rent reduction or where rent payments are suspended or if it allows forfeiture of the lease if rent isn’t paid. Typically, many of these provisions might only be covered in a lease where an unexpected event leaves the premises unfit for occupation or use. A global pandemic is new territory for everyone.
With the absence of any written provisions it will be for you and the tenant to discuss the options to see if you can agree on a solution. The options will be:
- Asking for the full rent due to be paid and following through with legal action if it isn’t paid.
- Agreeing to the lease being forfeited and taking back control of the property.
- Agreeing a rent reduction for a specific period.
- Agreeing a rent holiday for a specific period.
- Agreeing to rent payments being deferred but paid in full at a later date or in staged payments at a later date.
Whatever you decide you need to consider that new laws (under the Coronavirus Act 2020) were brought in on 26 March and apply to tenancies covered by Part II of the Landlord and Tenant act 1954, (commercial tenancies lasting six months or more) which give business tenants new protection from eviction by forfeiture and re-entry until at least 30 June 2020. Landlords who have not waived the right to forfeit in writing will be able to begin forfeiture proceedings after this date.
If a tenant asks to forfeit their tenancy you firstly need to check if there is anything in writing which covers this position in the lease agreement. If accepted this means the tenant is only liable for rent due up to this point and not for any rent due afterwards. There will be other areas to consider such as the condition of the property and if the tenant would normally have been liable for making good the structure of the building once their fixtures have been removed. If you can come to an agreement that they forfeit the lease and make good the property as agreed it will be easier to re-let it again in the future, but make sure you document anything which is agreed.
If you are happy to reduce the rent or agree a rent holiday and reach an agreement with the tenant then it will be important to confirm in writing any decision reached and ask the tenant to confirm in writing their agreement with this and to detail the new arrangement, especially the period in time it covers.
If rent is to be deferred and paid in the future or in staged payments this should also be set out in writing with all of the dates where future payments will be made, whether interest will be charged during this period and if so at what rate and also what happens if the tenant is still not able to make all of the future payments.
It is certainly worth taking legal advice in any of these scenarios and before an agreement is reached to make sure you fully understand your own position and the pros and cons of each arrangement.
By keeping communication channels open with your tenant it will hopefully ensure that if and when their business operations return, they will be willing to stay and your longer-term relationship with them will benefit from the flexibility and trust which has been built up during this difficult period.