The session provided an opportunity for Appleby’s property lawyers to comment on the recently published Guidance in relation to commercial leases. The Guidance was developed at the request of The Government of Jersey by a Law Society Property Working Group, which included John Bisson from Appleby.
The session was also an opportunity for us to share our views on the likely impact on the negotiation of commercial leases, in both the short and long term, as we progress through the current crisis.
The session gave rise to a number of topical points of discussion, we summarise two of those points below.
Implementation of the New Guidance
It was noted that many landlords have already received requests for rent holidays from tenants and in some cases, landlords had simply been told that rent would not be paid at all.
Whether or not to grant a rent suspension ultimately remains a matter for landlords’ discretion, noting that the Guidance is advisory, applies on a voluntary basis and does not impact the validity of existing obligations within a commercial lease. If a tenant fails to pay rent or other lease sums other than by agreement, then the tenant will be in breach of its lease obligations and accordingly remains at risk of the landlord instigating proceedings relating to rent arrears, lease cancellations and consequential orders for possession and eviction.
That said, there are important practical considerations for landlords to consider prior to seeking to enforce a breach of contract of a commercial lease during the current crisis:
1) the Courts are currently prioritising other cases relating to criminal cases and relating to children, which means any case is unlikely to be heard for some time;
2) there is the likely approach of the Courts to consider. As above, whilst the Guidance is advisory, the Courts will be entitled to take into account the conduct of both landlord and tenant in any future proceedings; and
3) there are the likely difficulties with finding a new tenant in the current climate and thus the likelihood of a rent void. It was noted that the number of enquiries for new tenancies was significantly down, which was not at all surprising.
Appleby commented that the remedy of cancellation of a lease can be regarded as draconian at the best of times and considers that an overzealous landlord is not likely to be treated sympathetically by the Courts. The Courts will adopt a sympathetic approach to tenants and may only grant this remedy in the case of the most serious and egregious breaches. Where a tenant can demonstrate temporary cash-flow issues that stem solely from the current crisis, we think it is unlikely that the Court will grant an order for cancellation of an existing lease.
For those landlord’s who are prepared to agree to an alteration to rent obligations, there will be a number of factors to consider, including:
- for what period to grant any suspension or waiver;
- whether any initial agreed period can be extended;
- if a suspension is granted, will the landlord require interest to be paid?; and
- can the landlord change its mind and revoke any temporary concession?
Landlords may also wish to consider whether it might be possible to agree to some change of the existing lease that it considers beneficial to it, for example, by extending the term of the lease.
The Guidance provides that any agreed concessions should be formalised in a contractually binding Temporary Voluntary Arrangement. Any such agreement could, we think, reasonably clarify that the arrangements are personal to the current tenant.
Point on the use of statutory demands and whether there is any equivalent device in jersey
One of the participants asked about what other remedies are available to commercial landlords for non-payment of rent or other lease sums, pointing to the use of statutory demands within the UK for demanding unpaid rent and whether Jersey had a similar device. The answer to this was that Jersey does not have any equivalent to a statutory demand.
For those unfamiliar, a failure to pay up, or to reach an agreement to pay up, within the relevant period (21 days) following receipt of a statutory demand acts as a precursor to the issuance of a winding-up petition.
Statutory demands are a powerful tool and can be used to demand payment of a debt from an individual or a company. They are generally taken extremely seriously by the recipient as the threat of a winding up petition provides a strong incentive to pay up. It was noted by Appleby that the UK Government has responded to this tactic only recently by introducing measures to ban the use of these statutory demands for tenants unable to pay their debts due to COVID-19 for a period up to 30 June 2020.
We will be holding another video conference session towards the end of May. Do let us know should you have any particular queries or suggested topics that you would like for us to cover and indeed whether you would like to be invited to the next session.