Harrison Drury’s Chloe Harrison looks at how coronavirus may impact on lease agreements between landlords and tenants.
Due to recent developments globally, in the UK some businesses have remained open whereas others have already taken the decision to close.
While ambiguity remains over the legal position, we have noticed increased concern from commercial landlords and tenants over what their rights and obligations are in light of the coronavirus outbreak.
Both landlords and tenants will need to check over the contents of their insurance policies and lease agreements and this should, preferably, be carried out prior to any action being taken. Landlords and tenants need to clarify what their respective rights and responsibilities are and see whether losses (due to pestilence, business interruption and/or crisis management) are covered under any insurance protections.
By reviewing these provisions now, this puts the relevant party in an informed position to make appropriate decisions relating to the commercial property and will, hopefully, prevent complications further down the line.
What do I need to be aware of as a tenant?
For tenants, failure to keep open, pay rent or any other material breach of lease are likely to give rise to the right for the landlord to forfeit the lease. However, the tenant also owes a duty of care to their staff as an employer if you do decide to remain open. Therefore, if the government has not formally asked your industry/workplace to close, it will have to be a balanced consideration as to whether you remain open in the first instance.
In the vast majority of cases, force majeure clauses are not included in commercial lease agreements and therefore your lease will be considered to be ongoing during this time, even if you haven’t been able to open for business.
As a tenant we can provide the necessary legal advice by reviewing the lease and advising on the forfeiture provisions. We can liaise with the landlord with a view to agreeing a rental concession if need be. Going forward, you also may wish to consider including such clauses in any new lease to allow termination, closure, and/or cessation of rents.
What do I need to be aware of as a landlord?
If you wish to close a centre or any common parts, you will need to check the lease to review your obligations and any potential claims which may arise. It may be the case that service charge payments should be reduced or suspended, but again you will need to review the contents of the lease.
As a landlord we can give you advice on the provisions of the lease and guide you to agreeing a way forward with the tenant. If your priority is to ensure continuity of occupation and so keep the tenant in the property, it may be better to agree a rent concession or payment holiday with the tenant as he will be more likely to stay in the property in those circumstances.
For further guidance on your commercial lease, please contact our property team on 01772 258321.