Due to the COVID-19 pandemic the Jersey Courts are giving priority to criminal cases and those involving children and are unlikely to be dealing with matters relating to property, including proceedings for rent arrears, lease cancellation, orders for possession and eviction (Tenancy Disputes). Late on 9 April 2020 the Government of Jersey issued Guidance for commercial property (Guidance) to be read in conjunction with Practice Directions to be issued by the Courts to encourage Landlords and Tenants to negotiate temporary compromises in lease obligations in a reasonable manner if either party gets into financial difficulties arising from the COVID-19 pandemic.
In relation to Residential Tenancies this has also been supplemented by Regulations which were approved by the States on 9 April 2020 to temporarily amend the Residential Tenancy Law. (Jersey) 2011. No Regulations have been enacted in relation to Commercial Leases as there is no similar statute governing these. Guidance for Residential Tenancies has to be issued by the Minister for Children and Housing under the Regulations but none has been posted on the Gov.je website as at the time of issuing this briefing note.
This Briefing Note deals solely with Commercial Leases. We will issue a separate Briefing Note regarding Residential Tenancies once the Minister has issued Guidance for residential property.
The Guidance does not operate to release either party from its obligations and only operates during the period specified by Practice Directions. Whilst the Guidance is advisory, and compliance with it is voluntary, the Courts will be entitled to take into account the conduct of both Landlord and Tenant in any future Tenancy Disputes (which the Government hopes will be a matter of last resort) once the moratorium ends and may draw adverse inferences and make such orders as it sees fit in respect of any non-compliance with the Guidance. In contrast the Regulations have the force of Law.
1 Commercial Guidance
1.1 Types of leases to which the Commercial Guidance is applicable.
Any lease, tenancy, licence or other agreement which provides for the occupation on commercial terms of commercial property. This includes office / retail / hospitality & leisure / warehousing / registered lodging houses (but not individual lodging units) and any property part commercial and part residential).
1.2 Guiding Principles
Both parties must act in an open, transparent and reasonable manner under the Guidance.
1.3 Tenant Hardship.
- Covers both rental payments and
obligations (e.g. repair, decoration ) due by
Tenant.
- Tenant gives Landlord at least one
week's notice of financial difficulties and its cause related
to Covid-19 restrictions together with supporting
evidence. Landlord can reasonably require further
evidence.
- Landlord can be required to enter
into a confidentiality agreement in respect of the details provided
by the Tenant.
- Parties acting reasonably will seek
to agree a temporary voluntary arrangement ( e.g. rent reduction,
rent deferral, change from quarterly in advance to monthly in
arrears, deferral of obligations, and/or lease surrender) and
document this in a written agreement.(Temporary Voluntary
Arrangement)
- If the Landlord is also suffering
financial hardship to an extent that it would not be reasonable for
it to agree a payment or obligation concession the Landlord shall
provide evidence of its financial hardship in writing to the Tenant
and the latter can be required to enter into a confidentiality
agreement in respect of this information If the Landlord is
suffering financial hardship, the Landlord shall not be required to
agree a concession.
- Each party must advise the other when their circumstances change and when it is no longer suffering from financial hardship or is no longer suffering an inability to comply with the Lease terms to the extent that they are once again able to discharge all or some of the obligations due by them under the Lease. In these circumstances the parties shall reassess the Temporary Voluntary Arrangement on the same principles.
1.4 Landlord Hardship
- The Landlord can also give notice to
the Tenant that because of financial hardship it cannot comply with
certain of its obligations under the Lease and shall provide
financial information to the Tenant in support of this claim. The
Tenant can be required to enter into a confidentiality agreement in
respect of this information.
- If the Tenant is suffering financial hardship to an extent that it would not be reasonable for it to agree a payment or obligation concession the Tenant shall provide evidence of its financial hardship in writing to the Landlord and the latter can be required to enter into a confidentiality agreement in respect of this information If the Tenant is suffering financial hardship, the Tenant shall not be required to agree a concession
1.5 Effect of Temporary Voluntary Arrangement
- It may be used;
- In any Tenancy Dispute
- In any application by the Landlord or the Tenant for any financial support package from the Government of Jersey.
- as proof required under Article 53 of the Income Tax (Jersey) Law 1961 for tax relief for rent not paid.
- No Tenancy Disputes can be issued if
the parties are complying with it
- It only binds the parties to it.
1.6 Effect of not agreeing a Temporary Voluntary Agreement
- Whilst compliance with the Guidance is voluntary, if either party acted contrary to the Guidance and was unreasonable in not agreeing to a temporary voluntary arrangement that was requested by the other, the Court can take this conduct into account in any Tenancy Dispute and draw adverse inferences and make such orders as it sees fit in respect of any non-compliance with the Guidance.
2 TAKE AWAYS
Landlords and Tenants should abide by the 6 Cs during the Covid-19 crisis
- Communicate –
It is essential you notify the other party of your financial
hardship and don't just sit back and do nothing.
- Confidentiality -
before you supply financial information about you and your
business you should get the other party to sign a confidentiality
agreement.
- Comply – You
should follow the Guidance. It is not compulsory
and failure to follow it is not an offence but when you come to
enforce any breach the Courts will be entitled to take into account
that you did not follow the Guidance and could effectively
"penalise" you by, for example, not awarding you costs,
making you pay the other party's costs, not awarding interest,
delaying possession, delaying payments, or not cancelling the
lease.
- Convince – you
must be able to substantiate your financial hardship by providing
financial information.
- Compromise -
in these extraordinary times everyone is being affected by
Covid-19 and compromises may have to be made to enable businesses
to survive during what is likely to be a long recession.
- Contract – enter into a written Temporary Voluntary Arrangement agreement. This will bind the parties and not their successors in title . If it relates to a lease that has a longer initial term that 9 years that was created by a contract registered in the Public Registry, and makes a long term variation to the lease (e.g. varies the length of the lease) or effects a surrender of the lease then this will also need to be recorded in the Public Registry
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.