The World Health Organization (WHO) has long declared the current widespread coronavirus outbreak – associated with the illness Covid-19 – to have reached the status of a global pandemic, and in recent days and weeks, we have begun to see the very real consequences for the economy.
Retailers, restaurant owners and other tenant businesses have had to deal with unprecedented disruption as customers have chosen to keep their distance from such crowded spaces as shopping centres, high streets and retail parks.
Indeed, many such firms, ranging from pubs, restaurants and gyms to theatres and leisure centres, have now taken the step of closing in response to Prime Minister Boris Johnson’s recent advice to them to do so, as the government seeks to minimise the spread of Covid-19.
Meanwhile, at the time of typing, other retailers were officially allowed to remain open. However, a large proportion of these businesses – including such household names as New Look, The Body Shop and HMV – have made their own decisions to temporarily close their stores.
Managing the implications of this monumental and fast-moving situation
Notwithstanding the measures already announced by government in an attempt to support vulnerable businesses, if you are a tenant of a commercial lease, the sharp decline in footfall and the associated decrease in customer numbers may be forcing you to turn to your landlord for assistance.
If this describes your predicament, there are various questions that you may have as this fast-moving situation evolves. You may be unsure, for instance, whether you are able to vacate the premises and terminate the lease, or whether your rent will be suspended.
You may also be anxious to know whether any “keep open” obligation in your lease would require you to stay open. If you are presently negotiating a new lease, meanwhile, you might be curious to know whether any particular new protective provisions should be added to it.
The answers to these questions will differ from one lease to the next. However, below, we have set out some general information broadly applicable to a standard modern commercial property lease.
Are we able to vacate the premises and terminate the lease?
A tenant attempting to successfully argue for their commercial lease to be terminated in these circumstances would need to prove that:
- there has been a significant change in their rights and obligations under the lease, and it is impossible for them to perform any or all of their obligations under the lease. This would mean that the lease is deemed “frustrated” and could be terminated; or
- this global pandemic triggers a “force majeure” boiler plate clause in the lease. This is a clause that says unforeseeable circumstances have prevented the tenant from fulfilling their obligations under the lease. It should be noted that many modern commercial leases lack a “force majeure” clause.
The current consensus in the legal community seems to be that tenants would not be able to prove either (a) or (b) applies to their own commercial lease. However, this may be subject to change as the situation evolves.
Can we have our rent suspended?
In the case of most modern commercial leases, damage or destruction must have occurred to the premises in order for rent to be suspended in accordance with the lease.
While there are normally several caveats and varying circumstances that will dictate whether the rent can or cannot be suspended, the Covid-19 outbreak does not meet the requirements for rent suspension under a standard commercial lease.
Are we required to stay open if there is a “keep open” obligation in our lease?
The presence of such a provision in a commercial lease could be a particular flashpoint in the current circumstances for landlord-tenant disputes. In this instance, it is advisable for tenants to follow the official guidelines laid out by the government, health authorities and WHO.
Recent years have seen fierce debate about the enforceability of “keep open” clauses, and the ongoing international health crisis is likely to return this subject to the forefront of discussion.
Nonetheless, firms should seek legal advice prior to any decision to close premises, unless the landlord and/or the relevant authorities advise otherwise.
Should we add any new provisions to a lease that is currently being negotiated?
The simple answer to this is “yes”. As a tenant, you should absolutely be looking to add provisions into any new lease that you are presently negotiating, as well as any other clauses that might now be considered topical and relevant.
Don’t hesitate to contact our team for further specialised advice and guidance
Whatever challenges the ongoing Covid-19 outbreak is likely to bring for your firm, here at London Registrars, we can provide the solutions and expertise that will help you to navigate the safest route through the disruption for you, your business and your staff.
Contact us now to learn more about our business support, legal support and company secretarial services, the latter encompassing every key service from registered office addresses to the preparation and submission of the annual Confirmation Statement and minute book maintenance.
April 2020