COVID-19 - No place to go?

Given the current lockdown, many commercial landlords and tenants are looking to agree terms which will allow tenants to stay in situ and start trading again as soon as circumstances allow. However, what is the legal position where a lease has already been terminated at conclusion of the contractual term, or a break right triggered, but a tenant finds themselves unable to move out?

The answer is not straightforward and in each case the landlord and tenant should review the specific terms of their lease and any notices issued under it. However, there are certain principles which should be considered.

Vacant possession

Although a lease may have been legally terminated, the physical removal of a tenant from the property is a separate issue. This is something which would be judged on the facts and circumstances of each case eg the removal of furniture and effects and handing back of keys.

If the tenant does not physically move out, then a landlord can only evict a tenant by means of a court action. Any landlord who attempts an eviction without this, may find themselves liable to pay damages to their tenant. How this would be applied at the moment, given restricted access to the court system, and the potential for the courts to adopt a sympathetic approach to tenants, remains to be seen. Also, on a practical level given the current circumstances, would a landlord be wise to do this? It seems unlikely there would be new occupiers ready to move in, and anecdotal evidence indicates that parties are rather looking to facilitate or amend existing legal arrangements, rather than seeking the heavy handed use of the law.

Ordinarily in these circumstances, a landlord may be entitled to a common law form of penal damages know as “violent profits”. Violent profits are intended to act as a deterrent against any illegal occupancy of premises, and would apply not just to tenants who remain in a property following the terminating of their lease, but to any party who occupies the property without a legal basis. Generally speaking the level of violent profits can be as much as twice the current rent or a potential claim for damages for the actual loss incurred, but this would depend on the specific facts and circumstances – including coronavirus. While violent profits may be payable due to post termination occupation by a tenant, this is unlikely to apply if continued occupation has occurred with landlord’s consent, eg while negotiating the new lease or a short term extension, provided some other payment, in lieu of rent, was made.

What happens if the natural contractual end date passes and neither party to a lease has formally terminated? A landlord may argue that since vacant possession had not been provided, the tenant has acted contrary to any preceding notice either terminating or breaking the lease and is therefore barred from relying upon that. Here, the landlord (or perhaps the tenant) could argue that the lease runs on under what is known as the doctrine of “tacit relocation”. What is the effect of this doctrine? If notice is not given by one party to the other (preferably clearly and in writing), then under Scots law the lease would generally continue for a further year on the same terms and conditions as existed at the termination date. Parties wanting to make sure the lease does not continue still need to serve written notice which for most (but not all) commercial leases, is no less than 40 days prior to the termination date, although there are exceptions to this rule. In these challenging times a key issue for termination notices will be the physical delivery and receipt of notices, although the parties may reach some alternative agreement to waive the notice provisions in these circumstances.

In the current circumstances, where the inability to physically move out may well be due to COVID-19 measures, and many tenants are now lacking the ability or willingness to pay rent, and actively seeking a reduced rent or rent holiday,  the position on staying in situ is even less clear cut. Undoubtedly, while this may be the only practical option (as a landlord is unlikely to have a new tenant any time soon) simply staying put with no agreement to do so is not without risk.

In some cases these circumstances may even represent an opportunity.  A few tenants could find themselves postponing moves indefinitely and looking instead to re-gear their current leases with the potential (due to lack of alternative occupiers) for more generous renewal packages than before the current lockdown.

Strategies

Given all of the current uncertainties, both in terms of practicalities eg on service of notices, and the application of the law eg how the courts will approach (or even be in a position to accept) applications for eviction orders, the most obvious strategy to deal with these sets of circumstances, is clear communication between the parties.

The agreement of clear practical terms leading to a a short term licence or extension to the existing lease, or waiver of the existing lease terms and creation of (hopefully) short term substitute arrangements, can provide parties with clarity and a degree of control over an otherwise uncertain situation. This should avoiding any argument that tacit relocation has applied or that violent profits could be recovered. That said, and as mentioned in previous related blogs, care should be taken in what is agreed to, so that any concessions or new obligations to the current circumstances do not have unintended consequences.