Coronavirus: Can A Tenant End Their Commercial Property Lease?
As the coronavirus pandemic continues to spread, commercial property owners are attempting to navigate unprecedented challenges – with landlords becoming increasingly concerned about how the outbreak is likely to impact their business.
Law firm Nelsons has seen an increase in the number of enquiries it has received from landlords in relation to commercial leases. Mary Gharmount, associate who specialises in commercial property law at Nelsons, provides answers to some of the most frequently asked questions the team has been receiving.
Can a tenant bring a commercial lease to an end as a result of the coronavirus?
No. A tenant can only bring a lease to an early end if they have a break right to terminate the lease. A tenant may attempt to argue that the COVID-19 outbreak amounts to a ‘force majeure’ event – which refers to the occurrence of an event that is outside the reasonable control of a party and which prevents them from performing their obligations under a contract. This must be clearly set out in any legal document, however this isn’t a clause commonly found in modern commercial leases.
Can a tenant request a rent suspension if their premises are unusable due to coronavirus and government legislation?
A tenant that is unable to use their lease premises as a result of COVID-19 may look for a rent suspension or a rent reduction.
Modern commercial leases only provide for a suspension if the premises are damaged, destroyed or unusable due to an insured risk – and usually, this would not include the coronavirus outbreak. Cover for this would only be available if the landlord’s insurer offered cover as standard under its policy terms, which is unusual.
Any insurance policies taken out after 11th March 2020 (the date the World Health Organisation declared the COVID-19 outbreak as a pandemic) are unlikely to provide cover for such instances. However, a check directly with insurance companies should be undertaken.
Therefore, the tenant will need to pay the rent.
Some leases may provide that rent is suspended in the event of an uninsured risk occurring, but that is unusual. Depending on the definition of uninsured risk, the landlord may be obliged to provide a rent suspension. If the landlord is, they should seek to look at their ‘loss of rent’ insurance.
If the lease does not provide for a rent suspension, a landlord is not obliged to accept the suspension. However, the landlord should give careful consideration as to whether to accept this request and, if so, a carefully drafted rent suspension or reduction letter should be prepared by a solicitor. If a tenant is concerned, they should be advised to look at their own business interruption insurance.
If rent is not suspended, can a tenant choose to withhold rent?
The answer is no, since a well drafted modern lease usually has a clause that provides that the tenant cannot withhold rent payments.
Who will be responsible for the costs associated with a deep clean?
Landlords responsible for the cleaning and maintenance of common parts of their rent building will be looking to provide more frequent cleaning services including deep cleaning, as well as additional resources such as hand sanitiser. Whether these costs are recoverable and to what degree will depend on the terms of the lease.
If the lease provides for a service charge, a landlord, depending on the drafting of the lease terms, should be able to recover the costs via the service charge provisions. Leases usually allow the landlord to recover the costs of services from a tenant as part of ‘good estate management’ and deep cleaning could be argued to fall into this concept.
However, a landlord should check their lease to see if a service cap (i.e. maximum) is included. If one is, a landlord would not be entitled to recover the costs for the service charge year that exceeds the cap.
The above deals with the circumstances surrounding existing commercial leases and the impact of the coronavirus. It is likely that in negotiations of new commercial leases, close attention will be paid to the obligations of each party in relation to COVID-19 as well as similar future events. It may be that ‘force majeure’ clauses and rent suspensions for uninsured risk are incorporated going forwards.
For more information on commercial property law, please visit www.nelsonslaw.co.uk/commercial-property or call 0800 024 1976. For the latest government advice on coronavirus, please visit https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public.
