Shared & Halved - Occupiers

As part of our IHL series of webinars looking at the most pressing issues in light of the unique challenges posed by coronavirus COVID-19, on 4 June we hosted a webinar to answer some of your questions around occupancy and any real estate issues.

Introduction

COVID-19 is a crisis unlike any other we have faced as a country, presenting a new and varied set of challenges to UK and global businesses. In this webinar we looked at what IHLs needs to know about the issues facing occupiers and other property related challenges. Below are our key tips and takeaways.

Rent

• This area has seen rapidly changing advice in the last few months.
• A number of occupier clients have been withholding rent as they have been unable to trade and units have been closed.
• Advice has been to communicate with landlord and to try to come up with a solution.
• Where landlords aren’t willing to make a deal they are instead looking to take the following enforcement options:
  • Forfeiture – this is where the landlord can end the lease and can literally change the locks overnight in respect of rent arrears. The Government has put some protection in place under the Coronavirus Act so landlords can’t do this but this only applies until 30 June (unless they extend it). Many clients don’t think landlords will take this risk, especially on the retail and leisure side, but it is a risk. There are some “last ditch attempt” arguments which we have been looking at with leading counsel to challenge this and these are around implied terms, temporary frustration and rent suspension if landlords are insured against the pandemic (but this may only be 10%).
  • Commercial rent arrears recovery – the minimum rent arrears has been increased from 7 days to 90 days. Some bailiffs may start to visit properties once they open on 15 June as they have been unable to whilst close. It is worth checking if the notice is valid as if not they will not to resubmit which will help to delay (although until they serve again).
  • Statutory demands and winding up petitions – this is where Government intervention has been most positive for occupiers/ companies. The Bill is making its way through Parliament and we are anticipating it being put in place shortly. It will last for a month and will make statutory demands ineffective from 1 March to 30 June and winding up petitions that have been presented from 27th April. The creditor has to show that coronavirus has not impacted the debtor business – this is a high hurdle. We have seen injunctions granted ahead of the Bill coming in force.
  • Court proceedings – all the courts are still open and part 8 claims are being made for the rent. You could defend on the arguments listed above so the court proceedings could be dragged out and push for trial but this will be costly.
• COVID deals are happening where landlords are being proactive in looking for deals and ways to help tenants recover.
• We are seeing a raft of deals including 3 months rent free, turnover rent and adding time to the end of the lease.

New ways of operating – doing things differently

• Retail park – we think there will a resurgence in retail parks as social distancing can be more easily managed in the larger space.
• Shopping centres – they will struggle as not only will there be an onus on occupiers around social distancing measures but also getting in to shopping centres will be much more complex and landlords will need to manage this. There may be the need for temperature tests for visitors.
• High street – possible resurgence as government investing more here. They will look very different and may be mixed use. People have become more supportive of local businesses and we may find them incorporated into high the street.
• Office space – majority working from home and many businesses reviewing how this will look when we return to work. Traditional offices will change to spaces which are much more agile and endorse collaborative working. There will always be a need for offices but there will be many different offerings.

Legal practical aspects

• Lease changes for flexibility – Leases tend to be very structured documents and need to factor in more flexibility to include COVID clauses to help with operational terms (such as serving to email address rather than Head Office) and establishing the treatment of rent with landlords in the event of another lockdown – sharing the pain
• We are also trying to get in COVID clauses for rent suspension but this has been more challenging with landlords pushing back strongly as it goes to value.
• Change to premises for compliance with COVID regs – alterations clauses set out what occupiers can/ can’t do without consent from landlord. If need consent then start asap and flag why they are doing these works to the landlord.
• Right to underlet is worth looking at if looking to downsize.

Cooperation in supply chain

• At the start it was difficult to get the landlords involved in discussions but this has improved and some landlords are being very proactive. It is best where dialogue is being encouraged and trying to work together.
• Tenants are suggesting their own offers.
• Unfortunately a lot of stalemate too and relationships are suffering – we would much rather see parties co-operating than litigating and there are few winners as a result of this pandemic. Communication is key.