During these unprecedented times, it is unsurprising that the primary focus for both commercial landlords and tenants is whether tenants will be able to comply with their lease obligations, especially those relating to the payment of rent, service charge and insurance.
While it is understandable that any rent reviews falling due may be overlooked, it is not something that should be done so without careful consideration.
From a practical perspective, with the 2km government restrictions having been extended for a further three weeks until the 5th of May, it is not physically possible for surveyors to inspect buildings. If the restrictions continue for much longer, the comparable evidence and market commentary available will be greatly decreased.
The inability of the parties to determine the revised rent may result in an unintended draconian burden on the tenant, as leases are often drafted to allow for interest to be charged on backdated rent, which is to be paid immediately in arrears once the revised rent has been struck. In the first instance, tenants should have their solicitors review the rent review schedule of their lease to confirm whether such a provision exists, and, if so, should discuss the possibility of waiving such interest payments with the landlord.
Landlords should also review their leases to ascertain whether “time is of the essence” in respect of rent reviews to avoid harming their legal position because of delays in triggering rent reviews. In basic terms, time is “of the essence” if the lease provides that if a trigger event does not occur within a specified time, the right to review is lost. If time is not of the essence, the right to review the rent continues indefinitely until that right is invoked, abandoned or either party is “estopped” from invoking it. The general presumption is that time is not of the essence for a rent review clause
Landlords and Tenants should be aware that the valuation date for rent review purposes is the rent review date as defined in the lease, not the date the rent review is triggered. Case law supports the position that post-review date events are not relevant on review, principally because those events would not have been known about in the market at that time. As the review may not be triggered for quite some time given the current global pandemic, it is important for both parties to keep evidence and information as to state of the market on the rent review date to avoid disputes later down the line. This happened quite a lot during the financial crisis.
Finally, Landlords who agree to requests for temporary rent abatements from tenants should be careful when documenting such agreements to disregard them for the purpose of calculating any future rent reviews. A Landlord is under no statutory obligation to agree to a rent abatement and is likely doing so to assist its tenant during these troubled times. It would be entirely unreasonable for a Landlord to be penalised at a later stage of the term by having such a concession taken into account and thereby reducing the aggregate headline rents and therefore the rent when valued on rent review.
We have extensive experience of working with both Landlords and Tenants to advise on the practical application of lease obligations and covenants. We are available to discuss any issues that may arise for you as a result of your evolving obligations as a Landlord and/or Tenant during this time of uncertainty. For further information, please contact Sarah Keenan, on +353 1 639 3000 or visit www.leman.ie.