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    Expert Insights

"Give us a break..."

Few will disagree with the statement that we can learn much from history. 

Whilst the current COVID-19 pandemic is unprecedented in modern times, the property industry could do well to look back to trends that emerged from the last recession in the UK in 2008. 

What happened then and is no doubt happening or about to happen now is that corporate occupiers look carefully at their property requirements and their existing property portfolios. 

This is particularly so where many commentators consider a further UK recession looks inevitable at this point.

For many businesses, wage bills and property costs form the bulk of their year on year expenditure, and in times of recession, understandably the focus for many turns to how costs can be cut or scaled back. 

In what is an incredibly difficult period where the Government has mandated that the majority of commercial premises must be closed and operators prohibited from trading, commercial landlords are already receiving requests from tenants for rent concessions.

The overriding message from the Government is “we are all in this together”, and many landlords and tenants are entering into discussions in respect of their premises.

The Government’s recent announcement that there will be a three month moratorium on enforcing the payment of commercial rents of business tenancies by forfeiture will be welcomed, particularly by those tenants who are currently not trading. 

At the end of that moratorium (initially 90 days but this period could be extended), landlords will once again have their full set of remedies including forfeiture open to them in respect of unpaid rent due, and some difficult decisions will then no doubt have to be made. 

As in the last recession, there will be many commercial tenants seeking to exercise break options in their leases – bringing leases to an end early and reducing their ongoing property costs.  In a difficult market, commercial landlords and tenants will be looking more closely at their property portfolios and leases with break options exercisable in the months ahead. 

To validly serve a break notice, any conditions attached to the exercise of the break option must be strictly complied with. Substantial compliance with conditions is not enough - this is an area of law where the technicalities matter and are of the utmost importance. 

There are also particular practical issues which have arisen in the context of the service of notices since the outbreak of Coronavirus because many offices are shut and the employees are working from home. The relevant provisions in the lease should be reviewed carefully to confirm whether or not a service provision is mandatory. 

Landlords and tenants will no doubt wish to consult their advisers at the earliest opportunity to take advice on their options, and to work through any potential issues in effecting service to ensure that there is sufficient time to make arrangements.

The importance of being well prepared and taking early expert advice cannot be over stated – the consequences of not doing so for both commercial landlords and tenants could be devastating.

The restrictions detailed above have been removed.  Please refer to our latest guidance in our March 2022 Quarter Day page which can be found here.

Please do not hesitate to contact David Haines or any member of the Real Estate Disputes team or your usual Charles Russell Speechlys LLP contact so that we can provide you with specific advice. 

This briefing note is not a substitute for legal advice on the specific circumstances of your case.

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