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Covid-19 has clearly had a huge impact on both landlords and tenants of commercial premises. In this article we aim to deal with queries that both landlords and tenants may have in respect of their obligations and liabilities under their leases and related insurance claims. This is intended as general advice only since, as with any contract, it will be necessary to review the terms of the lease or insurance policy before giving specific advice.
No. The majority of leases require tenants to pay a fixed annual rent by equal monthly instalments. Many landlords rely on the rent to pay their mortgage. Any failure by the tenant to pay rent on time and in full will be a breach of the terms of the lease allowing the landlord to take enforcement action and (subject to obtaining a Court Order) terminate the lease.
Many leases contain provisions under which rent may be reduced or suspended in certain circumstances. However, these provisions generally only apply when premises cannot be occupied as a result of physical damage caused by an insured risk (such as storm damage or flooding). Otherwise, rent can only be changed by agreement and so any tenants who are having difficulties paying their rent should speak to their landlords as soon as possible with a view to negotiating a reduction or suspension or rent.
No, unless there is an unusual term in the lease specifically obligating good faith in these circumstances. Despite there being no legal requirement for landlords to act in good faith there may be wider commercial or reputational reasons, avoiding tenant insolvency for example, as to why landlords may entertain a collaborative approach to agreeing temporary rent concessions or amendments to the terms of the lease.
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Bermuda Commercial Leases and COVID-19