Does your business occupy leased premises? No doubt among the billion things running through your mind is what your rights and obligations as a lessee are in the time COVID-19.
Let's get to it.
Do I have to close up shop?
Your commercial lease will state that you must comply with any laws, directions, or orders made by the government. So when ScoMo says pack it up, it means pack it up. But how does this work alongside the requirement to keep the premises open for trading (which your lease will also say)? It doesn't really.
With COVID-19, the courts would give governmental direction priority over the landlord's requirement to stay open for business. But, the more interesting question is should a tenant still be required to pay rent in this situation? Even though the obvious answer is no, it's not as straightforward as that.
Leases often include rent abatement or rent reduction clauses, but these tend to be limited to where the premises have been damaged or destroyed – not where there is a pandemic sweeping the globe. Therefore, landlords are likely to be able to keep collecting rent from you even if you can't enter the premises. It's no wonder we expect tenants to dispute their rental payments before the courts in such unprecedented circumstances.
Can I terminate my lease early or stop paying rent?
Short answer, probably not.
Most leases expressly make paying rent an essential term of the lease, and make little or no room for exceptions to this obligation. So, whatever you do don't stop paying the rent.
Even though there are circumstances where contracts are able to be terminated early and without penalty or temporarily suspended due to the current pandemic (by relying on force majeure) this option is generally not available under commercial leases.
Because leases typically don't include force majeure clauses, a tenant may try to rely on the doctrine of frustration to get out of its lease. This doctrine, if successful, permits the tenant to terminate the lease on the basis that it is prevented from occupying the leased premises. Unfortunately, it is practically impossible to apply to commercial leases. The courts take a very narrow approach, so a temporary inability to use the premises won't do the trick. For example, even where premises were completely destroyed, or inaccessible for 18 months, the courts didn't find the lease to be frustrated.
So, then what are my options?
The good news is that the governments are constantly introducing new measures, and there's a high chance these will include laws forcing landlords to pass on some form of rental relief to commercial tenants. Also, just because you might not be entitled to a rent reduction or early termination does not mean you can't ask for it - particularly if you're not even using the space since you and your employees are now all working from home. You never know, the landlord might actually be sympathetic and grant this request. After all, it's not like they're going to be able to find a new tenant any time soon. So you do have leverage and now's a good time to use it.
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