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Covid Clauses in Commercial Leases: Advice for Landlords and Tenants

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Covid Clauses in Commercial Leases: Advice for Landlords and Tenants

Fiona Knight, Commercial Property Associate, looks at covid clauses in commercial leases and how they can be used to create provisions such as rent suspension.

Commercial Lease issues arising from the pandemic

The lease document governs the relationship between the landlord and the tenant. Although lease terms are far fairer than they were historically due to legislation and shifts in the market particularly to shorter leases, there has never been specific clauses included to cover pandemics…

What if you cannot access or trade from the premises due to Government regulations? What if the landlord cannot access the building to carry out its obligations or pay the outgoings on the building? What if you need to make alterations to the premises in order to be able to operate but the landlord will not agree?

What are covid clauses in commercial leases?

Covid clauses are provisions that are applicable during a pandemic. Covid clauses could apply if  business premises are forced to close, a common example being a rent suspension clause.

Further examples of such pandemic provisions are listed later in this article. It would be advisable that Covid clauses are requested upon lease negotiation/lease renewal negotiation.

Are covid clauses automatically included in new leases?

No. Leases are negotiated on an individual basis between the landlord and the tenant. So for new leases, they can be included if the parties agree. Tenants should raise this when negotiating the Heads of Terms for the new lease.

Are pandemic provisions in commercial leases automatically included in existing leases?

No. Lease terms can only be varied if the parties agree.

The Government did publish a Code of Practice for Commercial Property during the pandemic.

The Covid Code set out the approach that many landlords and tenants took, stating that the parties should work together collaboratively and where appropriate, find temporary and where possible, sustainable arrangements in order to create a shared recovery plan.

However, it was voluntary and did not change the underlying legal relationship or lease contracts and there are no powers to enforce its provisions.

What covid clauses could be included within a lease?

1. Rent suspension or rent reduction clauses

2. Turnover Rents

3. Tenant Break Options

4. Rent Free Extension

5. Service Charge Provisions

6. Keep Open Clauses

7. Suspension of vacant possession obligation

Are the parties likely to agree to pandemic provisons?

It depends on the circumstances of both landlord and tenant. If it is a new lease of empty premises which has been empty for quite some time, then it is more likely that the landlord will agree.

Whilst premises are empty, the landlord has no income from the premises but still have to maintain the building, pay business rates, standing charges and any mortgage on the property.

If a landlord believes the tenant has the ability and financial resources to trade through the current difficulties without going under and pay the rent eventually then he is unlikely to offer any concessions.  

Can I obtain pandemic insurance cover instead?

Not currently. All cover in the insurance market has been withdrawn. Cases against the refusal by insurers to pay out on pre-covid policies have been settled in favour of the business owner.

A Commercial Property Solicitor's View

Fiona Knight, Associate Solicitor in Frettens' Commercial Property Team, says: "This is an evolving area in which a ‘market’ consensus between landlord and tenant has not yet emerged. 

Despite the opposing interests of landlords and tenants, they will inevitably need to be balanced to secure an acceptable compromise for both parties."

Commercial Property Solicitors

If you have any questions regarding covid clauses or any other related queries following this article, please get in touch with our bright Commercial Property team for expert advice.

We offer a free initial appointment to all new clients. To get in touch with our bright lawyers simply call 01202 499255 or visit our get in touch page.

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