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10 Mar 2020

COVID-19 – Answers to 4 key landlord questions

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Scenario

You’re a landlord of a large multi let building. The building is comprised of multiple retail/leisure units on the ground floor and a wide range of office units above. There are extensive common parts. You’re following the latest developments regarding the potential spread of COVID-19 and want to know what impact this is likely to have on your business. You understand that it’s going to be fact specific and that you’ll need a lawyer to assess your specific documents and circumstances, but you want some general advice on four headline issues in case you have to close the building as a result of COVID-19.

Q.1. Can my tenants walk away from their leases?

A. No. 

Why? There are two potential lines of argument for tenants. Firstly, tenants might argue that their rights and obligations are now substantially different and that this means that their leases are “frustrated” and can be treated as terminated. Whilst frustration can apply to leases, the courts take a very restrictive approach and it’s unlikely that a short term closure would amount to frustration.

The second argument is that the COVID-19 outbreak amounts to a “force majeure” event. Whether or not a force majeure argument will succeed will depend on the terms of any force majeure clause in the lease. It’s very unusual to have a force majeure clause in a modern commercial lease, so this argument is unlikely to succeed.

Q.2  Will my tenant be entitled to a rent suspension?

A. No. 

Why?  Most rent suspension clauses require there to be “damage or destruction” to the building before they kick in. The virus is unlikely to cause damage or destruction and as such the rent suspension provisions won’t be triggered.

Q.3 Will the costs of a deep clean be recoverable through the service charge?

A. Yes

Why? Most service charges provide for the recovery of cleaning costs. The costs of a deep clean are likely to be over and above those of typical cleaning, but they should still be covered under the cleaning head and it seems difficult to dispute that they are reasonably incurred.

Q.4  Can I close the common parts?

A. Yes.

Why?  Most leases will provide that tenant access to the common parts can be suspended in an emergency. What will constitute an emergency? It’s fact specific, but if, in response to an imminent threat from COVID-19, a landlord acting reasonably decided to close the common parts in order to protect tenants and the public, that would appear to be in response to an emergency. Similarly, if Public Health England advised that the common parts should be closed, that too would be an emergency.

Watch this space…

This is an evolving area. It is sensible to keep in touch with managing agents and ensure that they’re communicating with tenants to keep everyone informed. Concerned tenants should also be advised to look at their own business interruption insurance.

We’re monitoring the news closely. If you would like advice tailored to your specific circumstances, please get in touch. 

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KEY CONTACT

Catriona Berman

Catriona Berman
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Stephen Laud
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James Trundle
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Jonathon Wilkes
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James Styles
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