Coronavirus and your commercial tenants- guidance for farmers

In this article we consider some of the options for farmers with small-scale commercial tenants whose businesses are affected by the developing coronavirus crisis.

Many farmers have diversified into small-scale commercial lettings on their farms. In some cases redundant buildings have been converted into office or workshop units and let to small businesses, and in others small business parks have been developed and are managed in hand. Written tenancy agreements tend to be short and in a standard form, and in some cases arrangements will be informal, done on a handshake.

The current crisis will test relationships, and landlords will need to take a pragmatic view about the courses of action open to them.

The two scenarios below describe some typical situations and give pointers about how to deal with them.

Scenario 1: Give me some breathing space.

Your tenant is a carpentry business which moved into an adapted redundant grainstore over a year ago. Its lease is for a three-year fixed term. The tenant has been in business for a long time, but work has dried up in the last 10 days. A retail client has put a stop on a large payment they were expecting. The rent is due on 1 April, to cover the next six months. A partner in the business has asked you for a rent holiday for that period. You want to be supportive, but you have cashflow issues of your own. You are not worried about the tenant’s stability long term.

First, check the tenancy agreement to see whether there are any circumstances in which you are obliged to grant a rent holiday or a reduction in rent, or under which the rent is suspended. We would not generally expect there to be such circumstances except in cases where, under the insurance clause, an event leaves the premises unfit for occupation or use.

Given that, this all down to negotiation, your relationship with the tenant, and you taking a view on what you can best live with. You can:-

•  insist on the rent being paid, and take action if it is not;
• agree and document a rent holiday (foregoing rental income for the period);
• agree and document a rent reduction for the period (i.e. waiving your right to part of the rent).
• agree and document a rent deferral plan (so the rent still accrues during the period, to be paid in stages at a future date);

We have drawn up a template agreement for clients to complete and adapt if they wish to pursue any of the last three options. Please contact us direct (see contact details below) if you would like us to email you a copy.

You will need to consider interest, and whether you are prepared to waive your right to interest on any overdue amounts.

If you are minded to insist on the rent, and take action if it is not paid, you will need to bear in mind the new measures included in the Coronavirus Act 2020 (in force from 26 March). The measures apply to tenancies covered by Part II of the Landlord & Tenant Act 1954 (i.e. to business tenancies which, broadly speaking, are for more than a fixed six-month term). The new measures give business tenants protection from eviction by forfeiture and re-entry until at least 30 June 2020. (The new measures only amount to a postponement of the right to forfeiture and landlords who have not expressly waived the right to forfeit in writing will be able to start forfeiture proceedings once the “moratorium” has been lifted.)

Scenario 2: Please release me.

You have a new tenant, three months into a one-year fixed term lease. They are an artisan food business start-up and have seen the food shows and other events they rely on cancelled for the foreseeable future. They contact you to say they cannot pay their rent, due on 1 April and ask you to forfeit their tenancy as they are owed money that is unlikely to be recovered and cannot see their business surviving and being able to pay the rent due for the year.

First, check your tenancy agreement to see whether it allows you to forfeit if the rent is not paid (in other words, check what your legal “backstop” is). There will generally be a clause which says, in terms, that if the rent is not paid within 14/21 days after becoming due, the Landlord has a right to re-enter the premises and the lease will immediately end, without prejudice to any right or remedy you have for an antecedent breach. That “ending” of the lease is probably why the tenant wants you to forfeit. They will not be liable for further rent, only for anything accruing up to that date.

However, you are not forced to forfeit. Indeed, the Coronavirus Act will likely restrict your ability to do so before 30 June 2020, although in the circumstances there is unlikely to be a challenge by the tenant through the courts. You could waive your right to forfeit and allow the lease to continue, but you will want to take a view on the likelihood of the tenant being able to pay any future rent (and, indeed, any rent already owing).

One concern of landlords is that the tenant will simply shut up shop and leave the premises full of their stock, and with waste uncollected, kit/furnishings and alterations in place and utilities still connected. If you are concerned about this, and the additional cost that you will have to bear to bring the unit back into condition for re-letting, an option would be to negotiate a surrender of the tenancy which is conditional on the tenant clearing their things out and putting the unit into the state it was in when let (repairing any damage to the structure caused by the removal of items). That may be the best outcome in the circumstances; it will leave the tenant free of liability for rent for the rest of the lease period, and leave you with a unit in a better state for re-letting. Any surrender of a tenancy should be documented.

Key Action Points

• Stay in control of the conversation with tenants, reply to their emails and be pro-active in discussing solutions.
• If you reach an agreement verbally, say you will confirm it in writing and ask the tenant to reply to confirm their agreement too, so that you have a written record. Oral agreements can give rise to difficulties afterwards, when parties have conflicting versions of what was agreed (“You said you’d let me off the rent” v “I said you could have time to pay”).
• Check the small print of tenancy agreements before you have substantive discussions (parties, guarantors, interest on late payments, insurance clauses, repairs and alteration, force majeure). Don’t commit yourself until you have done this.
• Set out clearly in writing in a single document what has been agreed. You should refer explicitly to the tenancy/the property/the parties/the current rent and the new arrangement etc. Make sure your tenant confirms the agreement (an email exchange should be sufficient as long as it covers the key points).
• If you are not the landlord (e.g. because the landlord is a trust or a company), make sure you are authorised to negotiate and enter into an agreement on the landlord’s behalf. That applies to the tenant too; check who the tenant is and ensure the person you enter into an agreement with has the authority to speak for/sign for the tenant.
• Keep abreast of the latest government announcements in relation to commercial tenants and assistance for small businesses. The Government issued initial guidance on 23 March and measures protecting Landlord & Tenant Act 1954 tenants from eviction for non-payment of rent until 30 June 2020 (initially) are included in the Coronavirus Act 2020.  
• You can come to different arrangements with different tenants, but you must not discriminate between tenants on any of the following grounds: disability, race, sex, religion or belief, gender reassignment, pregnancy and maternity, or sexual orientation.
• Don’t commit yourself to open-ended rent reductions or rent holidays that are not sustainable in the long term. Make sure there is a clear end date set out in writing. You can always extend the period in due course, or come to a different arrangement.
• As far as possible, think long term and reputationally. Your relationship with the tenant will likely continue beyond the crisis, or you may need to fill empty units.

Please note: This is a fast-moving situation. The above guidance is our understanding of the position as at 25 March 2020. However, it is intended as general guidance only; farm businesses should take legal advice based on their particular circumstances and tenancy agreements.

Please feel free to contact Sarah Whitehurst or Julie Robinson with any queries about the issues raised.