Lease Agreements, Tenancy Agreements, Landlord and Tenants in commercial or residential properties need legal solutions during these difficult COVID-19 times.
Did you hear about the shopping mall owners who let their tenants stay at their premises rent-free for 4 months?
The landlord owners of Village Market – a popular shopping mall in Nairobi – on 16th March 2020 gave a 4-month reprieve to their tenants on payment of rent during the COVID-19 pandemic. The rent relief covers about 250 tenants, 2 hotels, and recreational facilities within the mall.
Recognizing that business has been slow for tenants, with restaurants and eateries bearing most of the brunt, the landlords opted to assist their tenants by giving them rent relief for 4-months with different levels of concessions depending on products and services offered.
On the other hand, the print media has also been awash with news that the majority of Landlords have snubbed calls by the Government of Kenya to reduce rents for their tenants.
The Business Daily newspaper reports that “A national survey conducted by the Kenya National Bureau of Statistics (KNBS) on the impact of the disease on households has revealed that only 8.5 percent of landlords had offered rent reliefs in April.”
Further and inevitably defaults followed with the same newspaper reporting that “…between May 7 and 9, revealed that 30.5 percent of the tenants interviewed were unable to pay rent in April. About 21.5 percent of those who defaulted said they had always met their obligations on time, highlighting the impact of restrictions to curb the global Covid-19 pandemic on workers’ incomes.”
How does this impact you as a Landlord whether you own a commercial building or residential premises? What can you do to minimize default risk? What should be your next step?
Well, we’d advise that you first need to have an agreement between you and your tenant or tenants but we expect that nearly all Landlords have a Lease Agreement and if you don’t have one, please contact us for a free 30-minute initial consultation to get the ball rolling.
Our first approach would be to seek some dispute counseling measures usually arbitration but mediation is another very good alternative!
Great, now that you have your Lease Agreement with you, you need to read through it and really read through it.
There are some important clauses in there that will definitely help you depending on the specific circumstances between you and your tenants. The clauses will help you minimize your risks while hopefully reduce the chance of default by your tenants.
Risk mitigation may not be as straightforward as just reading the Lease/Tenancy Agreement. You should try looking at the specific clauses in your Lease/Tenancy Agreements such as:
- the period of the lease (is it 2 years or 5 years 3 months?)
- the interest on default of payments
- waiver clauses
- rent payment periods, whether monthly or quarterly (especially important for rental income taxes)
- service charge payments
- escalation policy on the lease (are there increases in rent coming due this year?)
- termination clause (usually not present in commercial lease agreements but essential for residential tenancy agreements)
- Force Majeure clauses (acts of God which COVID-19 may fall under but this has to be interpreted by a court of law)
- Re-entry clauses (especially important after a period of default on rent payments)
- Distress for rent
Are you a Landlord who wants to give your tenants some rent relief? Well, first please ensure any course of action is written down in a formal letter from you or your agent to your tenants.
Secondly, and depending on the circumstances, you can look at engaging your tenants or if they have engaged you, you should ideally have some form of legal representation to look at the effects of any actions for rent relief.
…we’d advise that you first need to have an agreement between you and your tenant or tenants but we expect that nearly all Landlords have a Lease Agreement and if you don’t have one, please contact us for a free 30-minute initial consultation…
What happens if your tenant has been unfair to you as a Landlord? What reliefs do you have? That’s a very good question! Our first approach would be to seek some dispute counseling measures usually arbitration but mediation is another very good alternative!
Where your tenant has been a persistent defaulter, there are reliefs such as re-entry clauses in the Lease Agreement/Tenancy Agreement or you may want to distress for rent but we urge caution and use of an Advocate to counsel you through the process.
Any default by a tenant to pay the agreed rental amount would constitute a material breach and trigger default provisions which may entitle a landlord to claim specific performance or damages.
This means that regardless of whether a tenant is in operation or not, it would not be a factor to be considered by a landlord if a strict and purely contractual approach were to be followed.
As time goes by, we see more and more innovation between Landlords and their Tenants in tackling the impact of COVID-19. There are suggestions for some solutions to alleviate the plight of businesses and ensure the survival of businesses including:
- payment holidays
- rental discounts or reductions
- waivers on some clauses in Lease/Tenancy Agreements
- adjustment on some clauses in Lease/Tenancy Agreements (e.g. mode/period of rental payment)
- limitations on eviction orders
The above measures are steps in the right direction. We encourage all our clients to sit down with their tenants to chart the way forward. These are uncertain times and legally we are all in uncharted waters hence the need for slight changes in the way we all conduct business.
Though there are some competition law concerns with such agreements, the general consensus seems to be that a pragmatic approach would save businesses which would in turn save jobs which in turn reduces defaults.
We’d love to hear your specific circumstances and stories. We’d also like to see what you, your landlord/tenant, business, or company is doing to address some of the issues in our article and generally cope with COVID-19.
Call us today and get a free callback in addition to a free 30-minute consultation with one of our legal professionals!