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Property Market Update



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Free period, Rent deposit, Deed withdrawal, Rent reduction, Rent review, Rent clause negotiating, an early surrender or lease expiring.

So the first question. Is can a tenant bring a commercial lease Fernandez, a result of COVID-19? Well, the answer is no, because unless the lease contains a break right, the tenant has no right to terminate the lease. The Tenant may argue that COVID-19 the team is a Force majeure event, which is an event. It is outside the control of both the landlord and the tenant and prevents the tenant from exercising its obligations under the lease.

However, if there was a Force majeure clause, it would need to be separate that's in the least and most commercial leases, these stages do not contain such a clause. Therefore, you cannot argue that. Whether in the future, when leases are drafted after the outbreak is finished, we'll see more of these Force majeure clauses. That is a possibility, but for most current leases that clause is not usually included.

Now a tenant may feel like just simply shutting up, shop, handing him the keys and walking away. This is not to be advised because until there is a formal surrender of the lease, the tenants liabilities on the lease will continue. So that's the obligations to repair the property, the obligations to pay the rent and service charges and so on.

So the tenant should not simply just walk away because they will still be liable and the landlords can come after them. Likewise, the landlord should not accept the keys to the property if the tenants simply offers them, because if the landlord accepts that, Its act of accepting the keys could amount to implying that there is a formal surrender of the lease and then the liabilities of the tenant will come to an end.

So the landlord has to be very careful about not accepting the case until he has some formal deeds surrendering the lease.

The next question, can a tenant withhold the payment of rent as a result of COVID-19? Again, the answer is no. Most leases will contain a clause it says the tenant has to pay the rent and cannot withhold any sons against it or anything like that. It has to pay the rent full and flat. Further effect of nonpaying rent is that lots of tenants may have personal concession, such as reduced rents, for example, under tenants, which are documented by way of a side letter

and these concessions, are important. So if the tenant decides not to pay the rent, it will lose its concession and in the future or something, it'd be, landed with a large bill because by not paying the rent, the concession may have ended as well. Furthermore, if the tenants say, well, I'm not paying the rent because the landlord can take the rent out of the rent deposit fee.

The tenant has to be aware that as soon as the landlord takes the nonpayment of rent out for the rent deposit fee, the tenant is only required under the rent deposit fee to top up the rent. So by not paying the rent, the least , it will still be we're required to top up the rent payment the landlord has before from the rent deposit date.

Furthermore, If the Tenant decides not to pay the rent, but it's already exercised at break clause. he could invalidate that break clause because most break clauses require the rent to be paid up to date at the date of the break. So if the tenant had decided in March not pay them much payment, Of rent, but had previously XIC a break clause to say, to expire on the June quarter date because the rent hadn't been paid, the landlord could say that the break on the quarter date in June is invalid because the rent is not paid up to date.

There have been new measures, as you may have seen in the press. That's the government has introduced in March where it does not allow the landlord to forfeit the lease for nonpayment of rent until after the 30th of June, 2020. Now this is a temporary measure only, basically tenants will not be forced out of their premises due to nonpayment of the March quarter of rent, but it is only a moratorium. After 30th of June, the rent is still due and the tenant is still liable after that date. Now, will that date change? We don't know, just keep up to date with the news.

Practically speaking, will the landlords actually take action to forfeit the lease for nonpayment of rent. If the landlords did that, they would leave themselves with empty properties, with the unlikely, hood of actually renting them again in the immediate future. So some rent is specified no rent at all. The other remedies available to the landlord for nonpayment of rent are still available.

Despite not being able to use the termination or forfeiture clause. These include being able to take action against tenant, and instigate insolvency proceedings or calling or any carrying tools under the lease. Or as already mentioned with drawing on the rent deposit.

The next question can a tenant request a rent suspension if the premises are unusable due to COVID-19 and the government legislation, at least suspension is not a normal course to find in the lease for nonpayment of rent. Suspension is usually in the aloud. If the premises are damaged, destroyed, or unusable due to an insured risk.

Moreover suspension, is it covered on the landlord's policy? Most more than commercial leases, any provide for suspension? As I've mentioned, if the premises are damaged, destroyed, or unusable, and only if the landlord's insurer offered cover under its policy terms, and this is unusual. However, As with all things, a check of the landlord's insurance policy, it should be made before looking at any other alternatives.

Sometimes the lease will allow for suspension for uninsured risks. If the lease does allow for that, the landlord will then needs a look at his loss of friends, insurance on his policy. If tenants are concerned, they should be, and probably have been looking at their business interruption insurance.

Rent review. It may be counterintuitive at this time to consider or contemplate reviewing the rent under a commercial lease, particularly where there's any going to be an upward only rent review. However in previous crisis where rental growth was established itself beforehand, a rent review resulted in an increase in rent wasn't out of the question, the key to all this is the rent review date. And this is the date at which the evaluation is made. So basically if the rent review was date is, say in the February, then of course COVID-19 would not be taken into account in terms of an evaluation. Just for example, in 2008, the lawyers, who were having to deal with rent reviews at the time of the financial crisis, came up with many different valuations, depending on the actual rate review date. So if it was on the 24th of June or the 29th of September, or the 25th of December 2008, Several different valuations came up because they were trying to account for the crisis at the time, most important things say for rent review is to consult a surveyor, but it's also important to ensure that tenant and landlords with reviews this year or next year, keep the information on what they and the market in which they operate know about the disease, any estimations as to its implications and how that features and their decision making processes at the relevant times, there are of course, ongoing reviews at moment where these sorts of issues are coming to a fault.


Daniel Flynn 3

Mr. Daniel Flynn

Head of Family Law and Dispute Resolution

020 3962 0148