The COVID-19 crisis has changed everything. Our personal lives have been upended and our businesses hit hard.<\/p>\n
And with many businesses operating out of leased premises, a great many landlords and tenants are asking themselves what happens if the crisis leaves a tenant unable to pay the agreed rental.<\/p>\n
As always \u201cWith Great Change comes Great Opportunity\u201d, but if you aren\u2019t able to very quickly find and exploit a variable new opportunity you may well struggle to pay your rental.<\/p>\n
Don\u2019t stop paying rental!<\/span><\/strong> Failing to pay rental on time means breaching your lease, and if you do that you face cancellation, legal action for recovery of outstanding rental, damages claims for breach (substantial if your lease has a long time to run and your landlord struggles to re-let) and calling up of your personal suretyships (exposing you to loss of all your personal assets, house etc).<\/p>\n Bottom line \u2013 take professional advice before<\/span> you just stop paying!<\/p>\n As a landlord you have a very delicate balancing act \u2013 on the one hand you won\u2019t want to lose even half-reasonable tenants at a time when finding new ones is going to be problematic. One wonders for example how many small businesses will now either fail entirely or be forced to cut costs. And how many others, having had an enforced period of \u201cworking from home\u201d, will now be reconsidering the whole concept of leasing separate office space at all.<\/p>\n On the other hand, of course, you need to cover your ongoing costs, which probably means enforcing paying of rent. That in turn means understanding your legal position \u2013 for example does your tenant now have an excuse to cancel the lease without penalty? If so, you lose a tenant without recompense. But if your tenant is still bound by the lease, you are free (if you wish \u2013 long-term support of your tenant may still be your best option) to demand full payment, then to reduce your losses by cancelling, evicting, executing against the tenant\u2019s assets and calling up personal suretyships.<\/p>\n \u201cForce majeure<\/em>\u201d (a French legal term meaning \u201csuperior force\u201d) is an event, either due to \u201cnatural causes\u201d (earthquakes, cyclones and so on) or to \u201chuman agency\u201d (war, riots, legislation and the like) that makes it impossible to comply with the lease.<\/p>\n We really are sailing into unchartered waters here with worldwide debate over whether or not this pandemic is indeed a case of force majeure<\/em>. There is bound to be a great deal of litigation before we can be certain whether or not the crisis (particularly the declaration of a national state of disaster and the lockdown period) will be accepted by our courts as a \u201cforce majeure<\/em>\u201d event. If it is, many tenants will argue that their failure to pay rental is not a breach of lease but rather a lease-destroying \u201csupervening impossibility of performance\u201d.<\/p>\n So where do you stand? There are two main scenarios to consider \u2013<\/p>\n 1. What does the lease say?<\/span><\/strong> The onus of proving a force majeure<\/em> is on the tenant trying to escape from the lease, and the first thing for both parties to check is what the lease says.Many leases have a clause that deals with a tenant\u2019s inability to occupy premises as a result of damages to or destruction of the premises which won\u2019t apply here, but some leases do have specific force majeure<\/em> clauses. If yours has such a clause you are bound by whatever it says so check whether a pandemic or government order to cease business might fall under the clause, and if so what results and remedies are specified.<\/p>\n 2. What must the tenant prove if there is nothing in the lease?<\/span><\/strong> If there is no force majeure<\/em> clause in your lease, our common law applies. Your problem here is that there are a lot of grey areas involved and every case will be different, so what follows is just a general and non-exhaustive guide.A tenant would have to prove not only that the impossibility caused loss of beneficial occupation (entitling the tenant perhaps to a rebate of rental for the lockdown period, or perhaps frustrating the lease altogether) but in all probability also that it is \u2013<\/p>\n Moreover our courts have held that \u201cIn each case it is necessary to \u2018look to the nature of the contract, the relation of the parties, the circumstances of the case, and the nature of the impossibility invoked by the defendant, to see whether the general rule ought, in the particular circumstances of the case, to be applied.\u201d<\/p>\n That\u2019s all fertile ground for expensive and draining litigation, at a time when neither of you is likely to have an appetite for either.<\/p>\n Which brings us to \u2026<\/p>\n Take this advice from Roman lawyer and statesman Cicero over two millennia ago: \u201cAgree, for the law is costly\u201d.<\/p>\n So if you are a tenant, rather than just stopping rental payments and then having to fight it out through the legal system, ask your landlord to agree to a win-win compromise that will limit both short-term and long-term damage to your respective businesses.<\/p>\n Draw up a checklist including matters such as \u2013<\/p>\n Beyond leases \u2013 force majeure<\/em> and contracts generally<\/p>\n Although this article specifically addresses landlords and tenants, the general principles of \u201cforce majeure<\/em>\u201d and \u201cimpossibility of performance\u201d apply to all contracts and might in some cases entitle you to delay or avoid contractual obligations beyond lease agreements. Take professional advice specific to your circumstances!<\/p>\n [This article was originally published in the LawDotNews May 2020 newsletter. To view the full May 2020 newsletter please go to this link<\/a>.]<\/p>\n","protected":false},"excerpt":{"rendered":" The COVID-19 crisis has changed everything. Our personal lives have been upended and our businesses hit hard. And with many businesses operating out of leased premises, a great many landlords and tenants are asking themselves what happens if the crisis leaves a tenant unable to pay the agreed rental. What follows is of necessity a …<\/p>\nLandlords \u2013 your balancing act<\/h3>\n
What about \u201cforce majeure<\/em>\u201d or \u201cimpossibility of performance\u201d?<\/h3>\n
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A practical template for negotiation<\/h3>\n
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