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What now for small retailers and venue operators that must close due to COVID-19?

24 March 2020

What rights (if any) does a tenant have to seek rent relief under their lease following a forced closure of their business?


We appreciate the uncertainty that recent events have thrown the world into.
 
But where do retailers and venue operators whose businesses have effectively been shut down overnight stand?
 
While the retail legislation contains provisions which entitle retailers to compensation due to disturbance to trade, such protections are generally limited to situations where the disturbance is due to the landlord's action (or inaction). Unless a landlord unilaterally elects to close a shopping centre or building, the retail legislation is unlikely to provide tenants with any comfort in these troubled times.

Most retail and commercial leases contain provisions for rental abatement in the event the premises (or a portion of them) are rendered unusable due to a damage or destruction event. In addition tenants are also required to comply with all laws and authority requirements.
 
Given the Government mandate shutting various retail outlets, entertainment venues and pubs and clubs, it may be open for a tenant to claim an abatement of rent through the damage and destruction provisions of their lease. 

The converse argument is that no landlord provides a warranty for fitness and it could be argued the restrictions are akin to planning/permit conditions which is a tenant risk. The merits of either argument will depend on the specific wording of the lease document itself.

While landlords may have the legal right to continue demanding full rent payments, is there a moral obligation not to do so? We have already seen some landlords publicly state they will support their tenants through this crisis, but will all landlords be as forthcoming, particularly where they have to answer to banks and shareholders? What impact will the new debt recovery limitations have on a landlord's decision making?

There are so many unknowns at this stage and only time will tell, but the feeling is we are just at the tip of the iceberg and the effects of COVID-19 will be felt for months and years to come.

What is clear, is that you should seek legal advice before taking any action under your lease as there may be serious consequences.  For example, if a tenant unilaterally elects to withhold rental payments, such action may entitle the landlord to end the lease, evict the tenant and claim loss and damage caused by the non-payment from the tenant and any guarantor under the lease. 

Further Reading

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