Coronavirus and Leases

Here, Luke Crocker takes a look at how the Coronavirus may effect landlord, management companies and tenants in relation to the lease of a Commercial Property.

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Coronavirus and Lease

Landlords, Management Companies and Tenants have both social and legal responsibilities in face of coronavirus in respect of commercial property.

What are your responsibilities?

• Legal- You must comply with all legislation in relation to the parts of any property you control. This will include any standards set by the Department of Health and Social Care and any specific legislation or regulation made by the Government in connection with coronavirus.
• Social- Landlords and Management Companies will be expected to help prevent the spread of the virus by taking appropriate containment steps such as introducing hand sanitisers in common parts and increasing cleaning regimes of shared facilities and spaces.

What happens if a case of coronavirus occurs?

• Where your property is linked to a confirmed case, you should immediately inform Public Health England who will specify the action you should take.
• Please be aware that you may be asked to evacuate, close and decontaminate the property.
• You may also need to assist with tracking contacts and providing information about who has visited the property in recent weeks. If you employ people to work in the property you may have legal responsibilities in your capacity as an employer.

Who meets the bill for the additional services?

• Leases will normally allow a landlord providing services to recover from a tenant the costs incurred as part of ‘good estate management’ or as ‘required by statute’.
• Landlords and tenants should review what their leases say in respect of the potential costs and also check their insurance policies to see if they can recover costs through an insurance claim.

What happens if your property is closed?

• If access to your property is restricted, who covers the cost of the rent?
• Most leases will contain a rent suspension clause. However, this is usually limited to ‘insured risks’.
• Standard commercial property insurance is usually triggered by physical loss or damage, rather than business interruption caused by health epidemics.
• You need to check the terms of your lease to see what grounds trigger a suspension of rent (if any). You should also check your insurance policy, which may allow you to claim for business interruption.

Can you end the tenancy?

• The World Health Organisation have declared the outbreak of the coronavirus a public health emergency. In such circumstances, force majeure claims may arise.
• Parties have limited remedies under English common law when a contract becomes impossible to perform. Express force majeure clauses address this but It must be expressly included and properly defined in the contract.
• A force majeure clause operates to delay or absolve one or both parties to a contract of all or part performance of their obligations on the occurrence of certain events which are outside their control.
• Whether or not the coronavirus will constitute a force majeure event will depend on the relevant contractual wording and interpretation.
• Consequences of invoking clause include suspension of contractual obligations, non-liability, extensions of time to fulfil obligations, renegotiation of terms, obligation to mitigate losses and the right to terminate the contract.
• You should review your Lease to see if force majeure may be used by or against you. If you can invoke a force majeure clause, consider time limits and notice for doing so.
• If you are entering into new contracts, draft clauses sufficiently clearly to cover eventualities such as the coronavirus outbreak.