A keep open covenant requires a tenant to actively trade for the duration of its lease, but what is the landlord’s remedy if the tenant ceases to trade? In other words, do keep open covenants really work?
Keep open obligations are most commonly seen in anchor tenant leases or those leases where the rent is calculated according to the tenant’s turnover. These clauses are not popular with tenants. They argue that they should not be forced to trade when they do not want to do so, whereas landlords maintain that tenants should adhere to their leases.
The established case law is that only in the most exceptional cases will keep open covenants be enforced by specific performance. Instead, the more usual approach is to refuse specific performance and compensate the landlord in damages. A recent Scottish decision has also reversed Scottish case law and broadly followed the English position.
On a final note, landlords should carefully consider whether a keep open covenant is necessary, since the limited benefits could soon be outweighed by the negative impact upon rent review.
Relevant Law
Co-operative Assurance Society Ltd v Argyll Stores (Holdings) Ltd [6] 1 EGLR 71
Douglas Shelf Seven Ltd v Co-operative Wholesale Society Ltd and Kwik Save Group Plc
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 15/03/2007.
