With the uncertainty of this rapidly evolving pandemic, if you’re a business tenant or a commercial landlord you may be wondering what impact Coronavirus may have on your lease and your obligations.
We asked Keven Fehmi from our Real Estate team for his view on what you should be thinking about, and the positive steps you can take.
What if you’re a tenant affected by Coronavirus?
Q. If Coronavirus has impacted your sales, supply chain or staff, you might be struggling financially. Perhaps all your staff have had to self-isolate, and you’re not actually occupying your premises. Do you still have to pay the rent?
A. The straightforward answer is yes, except in the very rare event that your lease or tenancy agreement allows for suspension of rent in these circumstances. Unlike commercial contracts, leases in England Wales typically don’t contain detailed force majeure provisions or allow for suspension of rent in the event of force majeure.
If you’re using a serviced office, your agreement might include a force majeure clause. However these agreements are usually a licence rather than a lease and you should check the terms and conditions of your agreement with the serviced office provider.
However, now that COVID-19 is a notifiable disease, you should check your business interruption insurance as rent may be recoverable under the policy.
Q. Apart from paying the rent, do I have any specific obligations to the landlord if I’m not actually occupying the property?
A. Quite possibly, yes. You may have to inform the landlord if you’ll be leaving the property unoccupied for a certain period of time and you might need to put appropriate security arrangements in place to safeguard the property. Generally speaking, the tenant’s obligations in the lease will continue to apply and the landlord has no duty to offer any concessions to the tenant in respect of their obligations in the lease.
What if you’re a landlord affected by Coronavirus?
Q. Perhaps you’ve had the unwelcome news that one or more of the tenants in your building has employees infected by Coronavirus. Can you prevent them accessing or using the building?
A. Put simply, no. The ‘quiet enjoyment’ covenant in your lease means you can’t prevent the tenants from accessing or occupying their premises.
Q. But what if you feel you should shut down the property for health and safety reasons, to reduce the risk of spreading the virus?
A. Landlords are typically allowed to set reasonable regulations for the management of the building and require the tenant to comply with these. Therefore, landlords may introduce reasonable regulations regarding the management of the building (i.e. limiting access to common parts of the building which do not provide access to individual tenants’ premises) to stop the spread of any virus.
However, tenants are responsible for the health and safety in relation to their premises and employees. Therefore, as a landlord you are unlikely to be able to require the tenant to follow regulations which are at odds with the tenant’s right to quiet enjoyment or the tenant’s obligations to their employees.
Q. Are you still obliged to provide services to your tenant if there’s a Coronavirus outbreak on-site?
A. It depends on the terms of your lease, but usually landlords are granted relief from the obligation to have to provide services in circumstances beyond their control.
For example, it may be reasonable to say you’re not putting someone on the reception desk because the risk of them being infected by Coronavirus is beyond your control.
Typically, if you don’t provide the services, the tenant doesn’t pay for them (through the service charge). But some businesses, such as a hotel, cannot effectively run without key services such as reception or cleaners. Your lease will usually state that where the services are permitted to be suspended, you must restore those services as soon as you can.
Q. Talking of safety, are landlords obliged to keep tenants safe? If there’s an outbreak in my building, will I have to organise deep cleaning?
A. Typically, the lease will have a list of key services you have to provide, such as ensuring the building is structurally safe, but the provision of many of the other services is likely to be at your reasonable discretion. How often you clean the common areas of the building is more likely to be discretionary.
It’s best to work on the basis that you should take reasonable actions to provide the services in accordance with the principles of good estate management, and naturally you don’t want to gain a reputation for being careless or irresponsible. So yes, it may be that many landlords will be or should be making contingency plans for deep cleaning, and closing areas that don’t need to be accessed.
Advice for both parties
Bearing in mind how quickly legislation may be introduced to deal with the Coronavirus outbreak, new rules such as a complete clampdown on movement might make these issues irrelevant.
Leases are not generally drawn up to deal with this specific type of scenario. There will be provisions in the lease that both tenants and landlords should be aware of and can rely on should they need to, but you’ll probably only want to go into the detail if relations between you become strained.
The most sensible course of action is to keep up to speed with any legislation that will affect your business or your properties. And most importantly, aim to have an open dialogue – keep talking to each other. Of course, you’re also welcome to talk to us about your concerns.