The World Health Organisation announced the outbreak of COVID-19 a pandemic on 11 March 2020. The government in the United Kingdom is imposing new legislations on a daily basis in order to cope with the unprecedented changes we are currently facing as a nation.
As a result of the above, many commercial landlord and tenant relationships are facing disruption and uncertainty. This issue is something that can be observed through the globe, as the pandemic impacts all regions differently. In particular, in the UK, where London is considered one of the global financial centers of commerce.
Are Leases “Frustrated” Due To The Outbreak
In simple terms, the answer is no, however the rights and obligations have subsequently changed as a result of it. In essence, one cannot use the outbreak as an argument or justification for frustrating the lease.
The courts are maintaining a hardline approach on attempted frustration of any lease. This is particularly due to the fact that the government are yet to impose any restrictions on travel, in and out of the city.
Can this outbreak be deemed a “force majeure” event or an “act of God”?
Force majeure clauses are considered a rarity in twenty-first century commercial leases; however, in the unlikely event that it should occur, the wording of the clause ought to be examined carefully. Only once the contractual definition has been carefully determined, can one be certain of whether it applies.
What Happens If Forced To Close Or Reduce Opening Hours?
If the government imposes a curfew and as a consequence shops are forced to close, a tenant may potentially be in breach of its keep-open covenant. However, the majority of commercial leases also comprise of a clause for the tenant to comply with domestic laws and guidelines.
In the event that the aforementioned takes place, the latter clause will most likely prevail. This will particularly be the case if the landlord continues to receive any form of remuneration, as per the lease agreement.
A note to consider, would be that a turn-over clause may have a significant impact on the above circumstances.
Rent Suspension & Withholding Rent
The enforcement of a suspension clause will be heavily determined by its wording, particularly in common practice as it requires the premises to have suffered some form of material damage or destruction.
Withholding rent will most certainly amount to a breach, given that there are no provisions in the lease to allow the tenant to do so in any such circumstance. This can however, be negotiated with the landlord as an option.
Additional Service Charges
Whether any additional service charge may apply, will depend on the lease. In the event that it is required, the tenant will most likely be liable for this additional sum. Currently there are no legal obligations on commercial landlords to provide additional cleaning, however, many landlords may have taken precautionary measures.
Most service charge clauses permit the landlord to recover “reasonable costs”. Some wording even allows the landlord to recover costs incurred by them as a result of complying with applicable law. Thus, this is a good time for the landlords to review their service cost in both the short and long term.
Restrictions On Common Parts & Moving Forward
Most commercial leases allow the landlord to restrict access to common parts in these circumstances.
Any individuals who may have any symptoms of the virus must self-isolate right away and if your building is connected to a confirmed case; you should inform Public Health England or Public Health Wales immediately without any delay.
Since this is an ongoing matter, the regulations will be evolving along with it. Therefore, one needs to stay tuned with the new legislations and potential new clauses in leases in respect of the virus. Additionally, we highly recommend current tenants to check their business insurance policies for any potential claims.
Should you require any advice and assistance please contact us