The World Health Organisation (WHO) declared yesterday that the "corona virus" (strain Covid-19) outbreak has reached the status of global pandemic. Retailers, restaurant owners and many other tenant businesses are facing increased disruption with consumers choosing to stay away from crowded spaces such as shopping centres, retail parks and high streets. As the drop in footfall and dip in the number of consumers continues to rise, Tenants are looking to their Landlords for help to cushion the blow.
As a Tenant of a commercial lease, there are several considerations you will have as the situation continues to evolve. Some of the key questions you may have are:
1. Can we vacate the premises/terminate the lease?
2. Will our rent be suspended?
3. Do we have to stay open if we have a "keep open" obligation in our lease?
4. We are currently negotiating a new lease, should we add in any new provisions?
The answer to the above questions will be specific to each lease however the below seeks to provide general information based on a standard modern commercial property lease.
Can we vacate the premises/terminate the lease?
In order to argue that a commercial lease can be terminated in these circumstances, the Tenant would have to prove that:
(a) their rights and obligations under the lease have substantially changed and it is impossible to perform any or all of their obligations under the lease. The lease would therefore be deemed "frustrated" and would be terminated; or
(b) this global pandemic triggers any "force majeure" boiler plate clause in a lease which is a clause that says unforeseeable circumstances have prevented the Tenant from fulfilling their obligations under the lease. It is important to note that many modern commercial leases do not included a "force majeure" clause.
The current line of thought in the legal community is that tenants will be unable to prove either a) or b) above however the situation is changing rapidly.
Will our rent be suspended?
Most modern commercial leases require there to be damage or destruction to the premises in order for the rent to be suspended under the lease. There are also usually several caveats and varying circumstances whereby the rent may or may not be suspended. The Covid-19 outbreak does not satisfy the requirements under a standard commercial lease for suspension of rent.
Do we have to stay open if we have a "keep open" obligation in our lease?
Tenants must be wary of this provision, if it is included in their lease, as it could lead to potential disputes with a Landlord. Tenants are advised to follow the official guidelines produced by the government, public health authorities and WHO. The enforceability of "keep open" clauses has been hotly debated in recent years and the ongoing global health crisis may bring this topic back to the forefront of discussion. It is advisable to seek legal advice before closing the premises, unless otherwise advised by the relevant authorities and/or the Landlord.
We are currently negotiating a new lease, should we add in any new provisions?
Yes. Provisions to protect you as a Tenant in a global pandemic should be added into any new lease that is currently being negotiated, along with any other clauses that are now deemed to be relevant and topical.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.