New Covid-19 clauses in commercial leases
There are 4 key areas in which Covid-19 clauses are appearing in Commercial Leases
The effects of Covid-19 are being felt in every aspect of business life. In this article, we look at 4 key areas in which clauses relating to Covid-19 are now appearing in Commercial Leases and comment on some of the implications. A big thank you to Roger Clayson, Consultant Solicitor at Woodstock Property Law in Poole for supplying us with the text (and the expertise).
Suspension of Rent
A suspension of rent clause (and service charge where applicable) for when the tenant cannot occupy the property due to Covid. The principle is correct – why should a tenant pay for something which they cannot occupy through no fault of their own? However, a key question is whether this will be covered under a landlord’s loss of rent insurance? Almost certainly not, we suspect. This means that the success of this amendment will generally depend on the bargaining strength of the parties.
Landlords are generally amenable to concessions of this nature, provided that they are temporary. However, they will not wish to consider having to re-let property in the current climate. Such concessions should be covered in a side letter. The difficulty here comes in defining when the concession comes to an end. A potential alternative for retail clients is to link part of the rent to turnover.
A right for the tenant to terminate the lease if they cannot occupy the property due to Covid. This will almost certainly be resisted by landlords unless the term of the lease is very short. It might be worth looking at suspension provisions instead. Such a clause has previously been used on nuclear licensed sites where a nuclear incident arises.
Will the landlord be vulnerable to a claim by the tenant that it has not complied with an obligation to provide services due to Covid? Most properly drafted service charges contain a clause releasing the landlord from its obligations if the provision of the services is suspended due to events beyond its control. Will this extend to Covid? Careful drafting will be required.
As ever, the devil is in the detail! What these words from Roger tell us is that Covid has delivered complexity into the Commercial Leases’ market, putting an ever-greater premium on tenants and landlords being well advised and well prepared. This is where solicitors like Roger and his form can make a big difference.
From an insolvency point of view, this is a key area that we look into when engaged by businesses who are facing insolvency, as part of enabling us to investigate all options to help businesses recover if at all possible.
If your business, or a client’s, is facing insolvency, please get in touch for an initial complimentary discussion. The sooner we are engaged, the more we can do to help.