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Coronavirus - Legal guidance - Impact of COVID-19 on commercial leases - Ireland

  • Ireland

    03-04-2020

    What legislation has been passed in relation to COVID-19?

    The Irish Government has introduced emergency legislation in response to COVID-19. The Health (Preservation and Protection and other Emergency Measures in the Public Interest) Act 2020 (the “Act”) was signed into law on Friday 20 March 2020. The Act sets out a non-exhaustive list of measures that the Minister for Health may introduce, including: a requirement that owners or occupiers of premises put safeguards in place in order to prevent, limit, minimise or slow the risk of infection, this could include a temporary closure.

    The Emergency Measures in the Public Interest (Covid-19) Act 2020 (the “Emergency Act”) was signed into law on Friday 27 March 2020. The Emergency Act introduces a number of measures that will prevent a residential landlord from serving a termination notice and increasing rents at this time. There is some debate as to whether or not the Emergency Act applies to commercial leases, however this was not the intention of the legislation.

    For a more detailed commentary on whether or not the Emergency Act extends to commercial leases please visit our Coronavirus Hub.

    Have any additional steps been taken by the Irish Government?

    Restrictions on the movement of people were introduced by the Department of the Taoiseach on 24 March 2020; this will impact many businesses, in particular in the retail sector. The National Public Health Emergency Team (“NPHET“) has recommended that all non-essential retail outlets close to members of the public.

    Is there an obligation on tenants to pay rent or any other payments under a commercial lease where their business has been impacted by COVID-19?

    In short, yes. In Ireland, notwithstanding the outbreak of COVID-19, the rights and obligations between a landlord and tenant are governed by the terms of the lease. There are no measures in place in this jurisdiction to alter how the agreed terms should operate in times of a crisis or pandemic. There are no grounds for a tenant to withhold rent, suspend or delay the payment of rent, unless the lease expressly provides otherwise, eg damage caused by an insured risk. It would be highly unusual to see a right to withhold rent on the basis of a pandemic.

    What is the position if a tenant is required to close or their activities are restricted?

    If a government recommendation or direction has the effect of forcing a tenant to close its premises, there is no entitlement to a rent or service charge suspension. To date all government measures in respect of social distancing and the closure of non-essential retail outlets have been recommendations.

    Tenants wishing to temporarily close their premises are free to do so unless the lease contains a keep open provision. Any keep open obligation would need to be balanced against a tenant’s obligation to comply with government guidance and with the applicable laws. It is hard to see how a court would find against a tenant for breach of a keep open clause, where that tenant closed its premises due to a recommendation of a government authority.

    If a landlord elects to close a premises an argument could be made that there is a breach of its covenant of quiet enjoyment, although the tenant may have to show compliance with its covenants ie payment of rent, before being in a position to rely on this. Again, if a landlord closes a premises as a result of a recommendation of a government authority, it is unlikely that they would be held to be in breach of their obligations.

    Implications of the tenants not paying rent

    Communication between landlords and tenants is key. A unilateral action by a tenant to suspend or delay paying rent is a breach of covenant and there are a number of remedies available to landlords:

    1. Recovery of rent: If a tenant fails to pay rent as agreed in the lease, it is a breach of contract with the landlord who has a right of action to sue for the debt owed. A landlord has six years to bring a right of action for the non-payment of rent (a landlord can continue to recover any existing arrears less than six years overdue and future arrears until they become six years overdue).

    2. Deposits/Guarantees: A landlord may seek recourse to rental deposits or claim against lease guarantors. A guarantor may be sued to the same extent as a tenant since his liability is usually co-extensive with the tenant.

    3. Forfeiture: Ordinarily, landlords can forfeit a lease and re-enter the premises for breach of a condition by a tenant or under a proviso for re-entry for breach of covenant, ie if the rent remains unpaid for a certain period of time, usually 14 days. A landlord should exercise caution before effecting forfeiture under the terms of a commercial lease in light of the provisions of the Emergency Act. It should be noted, that in ordinary circumstances, where forfeiture is sought, a court has a general discretion to grant whatever relief it thinks fit and is usually sympathetic to tenants who seek relief against forfeiture. It is not uncommon for relief to be granted to a tenant on the basis that all arrears, plus interest and costs, are discharged by the tenant.

    4. Peaceable re-entry: If a landlord serves a forfeiture notice on a tenant, and the breach is not remedied within a specified time, the landlord is entitled to take possession of the premises but only where re-entry can be done peaceably. Again, in light of the provisions of the Emergency Act, a landlord should exercise caution in exercising this remedy.

    5. Keep Open: Unless and except where closure is ordered by the government, keep open clauses must be complied with and it is not advisable for a tenant to unilaterally close, even on a temporary basis. However, in our view, it is unlikely that a court would find a tenant to be in breach of its covenant if they are following a direction from the NPHET.

    Steps to take now

    We would advise all parties to a lease to engage early to try and come to some arrangement that works for all. There are many commercial ways of dealing with the impact of COVID-19 on commercial leasing. For example, parties could consider a reduction/waiver in rent for a short period of time in return for the extension of a term or the removal/extension of a break option. It is in everybody’s interest that terms are amicably agreed and the key to that is for parties to communicate at an early stage.

    For support on legal issues facing your business in light of the outbreak of Covid-19, please visit our Coronavirus hub to get our latest information and guidance.

    For further information, please contact

    Terry O'Malley, Partner in our Real Estate department - terryomalley@eversheds-sutherland.ie

    Orlagh Caffrey, Associate in our Real Estate department - orlaghcaffrey@eversheds-sutherland.ie

    Disclaimer

    This information is for guidance purposes only and should not be regarded as a substitute for taking legal advice. Please refer to the full terms and conditions on our website.

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