How will Coronavirus affect my Commercial Property?

• Posted onMarch 19, 2020

Amy Leivers, Head of Commercial Property discusses some of the recent questions we have received around the impact of Coronavirus on our clients Commercial Property.

With the ever changing response to the COVID-19 pandemic, we have had calls from commercial landlords asking for our initial advice on the situation.

Below is an of outline some of the questions we have been asked spanning; tenants, break clauses, rent suspension and terms of lease:

How will Coronavirus affect my Commercial Property and tenants?

“My Tenant has been in occupation for just over two years and has a ‘break clause’ coming up. What should I do?”

Break clauses are common and often form part of the negotiations between the landlord and tenant at the outset of the transaction. It would be prudent to check all leases carefully, and the timescales for break clauses diarised with care.

If a tenant wants to exercise a break clause, they will need to serve the notice on the landlord in accordance with the terms of the lease. It is always good practice to have clear communication channels between landlord and tenant and of course, to ensure that any party is notified if there has been a change of address.

“My tenant runs a restaurant. With current restrictions and a lack of customers, is my tenant entitled to a rent suspension?”

Subject to the wording of the lease, it is unlikely that the tenant will automatically be entitled to a rent suspension. Any rent suspension clauses are likely to need ‘damage or destruction’ to a building in order to be triggered. Think fire or flood rather than virus or illness.

“My tenant has 5 years left to run on their lease. Can they walk away from their lease because of the Coronavirus pandemic?”

Tenants may argue that their rights and obligations are now substantially different, and have caused their leases to be ‘frustrated’, and seek that their leases are terminated. Although frustration can apply in some circumstances, the courts traditionally take a very restrictive approach and short term or temporary closures are unlikely to amount to frustration.

Another argument that tenants may raises is whether the Coronavirus pandemic amounts to a ‘force majeure’ event. Although some leases may contain such clauses, they are more uncommon in modern commercial leases. Chances of success would depend on the wording of the clause.

Looking forward

As the situation changes, a sensible approach we suggest, would be to speak to managing agents and maintain communication with them.

If you have any specific concerns, whether as landlord or tenant, please reach out to Amy (LINK) or member of our commercial property team (LINK).

If you are attending a meeting at one of our offices, it is imperative that at this time we help and support each other and follow the guidance that is being issued by the government:

 

https://www.gov.uk/guidance/coronavirus-covid-19-information-for-the-public

 

and the NHS:

 

https://www.nhs.uk/conditions/coronavirus-covid-19/

 

Please keep an eye on our communications to you and on our website for updates on this situation.