As the world faces an unprecedented crisis, the consequential issues surrounding landlords and tenants are likely to linger. In this new article, Patrick F. O’Reilly & Co. Solicitors comments on commercial leases and the Covid-19 pandemic.
The impact of the COVID-19 virus on retail, hospitality and many othersectors has been disastrous. Many premises throughout the city and country are shut and in many cases revenue for those businesses has either disappeared entirely or are at an extremely low level. Subject to a few exceptions.
As a result, many tenants under commercial leases find themselves unable to pay the rent due to this. Many landlords of such premises are facing requests from tenants to either freeze or reduce their rents under commercial lease or indeed in some more serious cases to accept a surrender of a lease.
Commercial leases are contracts between the parties there to and the terms of same cannot be changed without the agreement of the parties to the contract. This means a tenant cannot unilaterally change the terms of that contract for example in relation to the payment of rent other than with the consent of the landlord. Failure by the tenant to pay the rent under a lease is a breach of covenant and means that the landlord can invoke a number of mechanisms under a lease such as a forfeiture or proceedings to recover arrears.
On the other hand, landlords may consider that the tenants may simply have no revenue from which to discharge the rent. It is unlikely that proceedings for recovery of arrears would in some cases result in a payment and would under the current circumstances take some time to progress through the courts system given the restrictions within same.
Force Majeure or Disruption Event Clauses must have been specifically included in the Leases originally for them to apply. Such clauses are not generally seen in commercial leases however.
Therefore, the parties to a commercial lease should decide what is best for their relationship going forward. It may be that the tenant can prove to a landlord that their income has been reduced and seek a reduction of rent in line with the amount which their income/profit has been reduced.
Landlords should also review their leases and consider with whom the leases entered into and if there are parent guarantees etc as this may influence their decision. It could be that a parent company are in a stronger financial position then the Irish subsidiary to carry the cost of the rent e.g. start-up subsidiaries etc.
It is advisable for both landlord and tenant to document any agreed measures and in particular, what the reduction is and for how long it is to continue, does it include service charge and that insurance is still to be paid. This is for the benefit of both parties so that there can be no dispute as to when the original rent recommences.