Recently we are hearing from more businesses who are unable to operate at their usual capacity due to COVID-19 social distancing restrictions and as such are unable to satisfy their lease payments. We are being contacted often by businesses to discuss what their rights and obligations are in this situation.
Many factors will depend on the terms of the lease document which has been entered into between the parties. For example, is there a force majeure clause which contemplates a pandemic, epidemic or impossibility of carrying out the terms of the contract? Are there termination provisions which will allow the lease to be terminated in this situation? Are there terms within the lease which may mean that the contract is now frustrated?
If there isn’t a remedy within the lease agreement itself, there are other avenues to explore such as appealing to the landlord for a rent reduction during this time. Many landlords and tenants are modifying their leases during this time to provide for reduced rent which is then paid in installments over the remainder of the term of the lease.
If the parties are unable to come to an agreement to modify the payment provisions of the lease during this time, then a review will need to be focused on the default provisions of the lease. Consideration also needs to be made as to if any individuals have indemnified the lease personally as their assets may be at risk if the landlord decides to enforce their indemnity.
This unique situation means that we are receiving many questions from worried clients on these matters. Each lease should be reviewed carefully so all options can be considered. If you have a commercial lease and want to know your rights, either as a landlord, or as a tenant, we encourage you to contact one of our lawyers to discuss your specific situation.
Written by: Nicola Collins