Covid-19 and Commercial Property

Covid-19 and Commercial Property

With the effects of COVID-19 causing entire businesses to close and workforces to uproot and work from home away from the office, it has created an issue for companies leasing properties for which they are paying rent but deriving no income. In such circumstances, there have been many questions around the legal basis for terminating lease agreements or suspending payments should the properties be forced to shut.

Here are the most common circumstances both businesses and landlords find themselves in as a result of the COVID-19 situation and how we advise dealing with each situation

Can I terminate the lease on my property as a result of COVID-19?

There are only two situations where it would be feasible to terminate a lease before the contract has been completed:

  1. If there is a specific provision around a break clause
  2. The inclusion of a Force Majeure clause.

The situations where a Force Majeure clause would apply are outlined in our article COVID-19 and Contract Law [LINK].

While the likelihood is there will not be a Force Majeure clause, simply because most leases do not contain such a provision, any claim for this would be subject to criteria which would have to be fulfilled.

Aside from such a clause or specific break clause, it is unlikely there are any other provisions which would legally provide for the termination of a lease. In such circumstances, negotiation with the landlord is the best route.

While there have been some suggestions the common law doctrine of frustration may apply, it is unlikely this very narrowly defined doctrine will be satisfied from the COVID-19 situation.

Also note that if Public Health England directed a property to close due to infection, there would be a statutory duty for a commercial landlord to ensure tenants were removed from the property for their safety.

In this situation, from a landlord perspective, it may be possible to recover the costs of additional cleaning of a property which has been infected. Most provisions in a lease will include a clause around ‘reasonable cleaning costs”. As long as the additional cleaning requirements are reasonable, it is possible to pass on the cost to the tenants.

Can I suspend my rent due to COVID-19?

The circumstances under which most rent suspension clauses come into force is generally when buildings have been damaged or destroyed and are completely uninhabitable. Under the circumstances of COVID-19, it is unlikely there is a legal basis for suspending rental payments.

Our property law specialists at Carter Bond can help you in any situation regarding commercial property issues and disputes arising from COVID-19. If you would like to speak to us, please call 020 3475 6751 and we’ll be happy to advise you.

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