Following the statement of the Prime Minister on 23 March, only essential businesses and commercial premises are permitted to remain open. These measures are effective immediately and the relevant authorities, including the police, have been given the powers to enforce these measures.
In this article, we highlight some issues that may arise from a UK real estate perspective.
Lease Obligations
Most standard leases include an obligation on the Tenant to comply with all statutes and notices made by competent authorities. As a result of this clause, a tenant is obliged to comply with the governments’ COVID-19 action plan. However, careful consideration must be given to the interplay with specific lease terms, such as ‘keep open’ clauses and other obligations in the lease. Landlords and tenants are advised to consult legal professionals regarding the impact of closing commercial premises.
For those occupying premises pursuant to licences, commercial contracts or other arrangements careful consideration must be given to each arrangement in accordance with its terms.
Rent Payments
The Coronavirus Act 2020, which became law on 25 March, has suspended a landlord’s ability to take forfeiture action against tenants who cannot pay their rent. These measures are effective from 26 March 2020 until 30 June 2020 (a date capable of being extended by the government).
It should be stressed that the moratorium on forfeiture only covers non-payment of rent. It does not apply to other breaches. Therefore, it remains open to a landlord to serve a s146 Law of Property Act 1925 notice for a breach other than non-payment of rent.
A number of landlords are approaching their tenants with proposals to share the rental risk and reaching voluntary arrangements. Any arrangement should be recorded in clear terms reflecting what has been agreed between the parties and should include provisions requiring any government assistance given to the tenant to be declared to the landlord.
When considering rent concessions, parties may agree that landlords can draw down on rent deposit funds to ease tenants’ cashflow issues. Appropriate provisions extending the date by which the account has to be topped up would need to be included.
Insurance
Most leases require tenants to pay an insurance premium to their landlords for insurance coverage from certain insured risks. If the definition of insured risks in a lease is wide enough to cover the pandemic, there may be a clause in the lease that entitles the tenant to a rent suspension. However, in the majority of insurance policies, the pandemic is unlikely to be classified as an insured risk, so the terms of each policy must be checked.
Health and safety
In almost all cases, it will be for the tenant to consider any threat to the health and safety of its employees. However, Landlords who are employers will also have duties to their staff and others regarding risks posed from infectious diseases. Failure to comply with these requirements can have serious consequences – for both organisations and individuals.
Although there is currently no explicit legal obligation on commercial landlords to provide extra cleaning services to prevent COVID-19 spreading in their premises, many are providing more frequent and thorough cleansing of common parts. Supplying these extra cleaning services will have cost implications, and commercial landlords should check the service-charge provisions in their leases to ensure such charges are recoverable.
Practical Tips
The situation is constantly changing. Landlords and tenants should keep up to date with the latest guidelines issued by the UK government and engage with your landlord or tenant (as the case may be) to agree concessions acceptable to both parties but ensuring these are documented in very clear terms signed by both parties (and any guarantor) to avoid future disputes.
All parties should review any obligations in leases, contracts and other land instruments in light of COVID-19 and ensure relevant epidemic wording is drafted into any new contracts of land.
This article does not constitute legal advice and reflects the situation as at 26th March 2020. Please get in touch with Wellers Law Group if you require assistance on real estate matters or any wider business issues.
If you would like to talk to a solicitor about these issues, please contact Nina Rajani in our London office on 020 7481 6387, Asma Shamim on 01372 750103 in our Surrey office, Mohit Chopra in Bromley on 020 8290 7953 or Duaa Izzidien in Sevenoaks on 01732 446371.