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13 May 2020

Reopening of premises: key points for landlords

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COVID-19 presents a rapidly evolving situation. Landlords need to be able to respond quickly, so here is the key information that you need to know if you are thinking of reopening your premises.

Mandatory closures

If the premises have been mandatorily closed, then, as you would expect, they must remain closed until the closure order is lifted.  The issues that arise in respect of mandatory closures were dealt with in our March client briefing on forced closure, which can be found here: https://www.shlegal.com/insights/forced-and-voluntary-closure-of-premises-key-points-for-landlords.

Thankfully, it is now anticipated that, in phases over the coming weeks and months, many of the mandatory closure obligations will be lifted wholly or partly.  Whilst that is good news, it presents different dilemmas for landlords.  Most notably, can they (and should they) reopen in whole or in part and what steps do they need to take?

Voluntary reopening

Many landlords are wondering what their rights and obligations are with regard to reopening their premises or keeping them closed. Could they be at risk of liability if they don’t reopen, or equally might they face liability if they do?

1. Should landlords be considering reopening premises?

This is only a headache for landlords of multi let premises, where landlords will have control of common parts and need to make such decisions. Where there is a lease of whole, the control of the building will have been devolved entirely to the tenant.  

Landlords should consider their duties to all people who might potentially be affected by their decision (staff, tenants and visitors), whether it is to reopen or to remain closed.  It is not an easy decision and there is no universal solution. It will depend on weighing up all the circumstances. These include the following:

  • Government guidance – will the landlord be able to comply with government guidance and requirements if it reopens in whole or in part?  Landlords should ensure that their teams and managing agents are fully up-to-speed in relation to the Health and Safety Executive's recommendations for businesses and employers in respect of COVID-19, details of which can be found at: https://www.hse.gov.uk/simple-health-safety/index.htm.

    On 13 May the Government published helpful guidance designed to assist owners and operators of public places, see: https://www.gov.uk/guidance/safer-public-places-urban-centres-and-green-spaces-covid-19.  That guidance provides a framework for identifying and dealing with issues associated with the use of public places in light of the need for social distancing and it includes practical examples.

    On 11 May the Government also published a series of guides on “working safely”, which can be found here: https://www.gov.uk/guidance/working-safely-during-coronavirus-covid-19.
  • Managing agents’ advice – managing agents are likely to be able to provide you with bespoke advice on key matters to comply with government guidance, such as social distancing measures, notices, security, cleaning practices, using lifts and toilets, emergency evacuation procedures etc. There may well be no absolute “right” answers as to the approach to take, but it is important to be able to demonstrate that the decisions that you make are based on a considered and reasoned analysis of the property specific facts and circumstances.

    Trade organisations are also publishing helpful advice and guidance.
  • Risk profile – have there been any been reported cases of COVID-19 in any part of the premises themselves, and, if so, has there been a deep clean?  How many cases have there been in the wider locality?  What are the premises used for – is it a particularly risky use with a lot of people congregating?
  • Duties to employees - landlords will owe duties to their own employees under health and safety at work regulations and should take appropriate precautions to keep employees safe (e.g. increased cleaning, especially of commonly touched surfaces such as door handles; making sure all employees are encouraged to wash their hands frequently; observing as a minimum the government guidance on isolating at home staff who are ill or at risk; and considering how to protect any particularly vulnerable staff with health conditions).  If landlords have employed managing agents then it is likely to be the agents rather than the landlord itself that will need to wrestle with this issue.
  • Duties to third parties using the premises (e.g. office workers, shoppers) - it is unlikely that third parties would succeed in establishing claims against landlords for contracting coronavirus as it will be difficult for any person to show where they caught the disease, but this is a further factor to include in the mix of decision making.  That said, if third parties can see that landlords are not following government guidance they are likely to bring that to the attention of the authorities, which could involve both legal and reputational risk.
  • Terms of the leases – do these permit restrictions or closure on estate management or health and safety grounds?  Would the landlord be at risk of claims from tenants if it does not reopen the premises, or if there a severe limitations on use?
  • Tenants’ viewpoint – practically speaking would the tenants be supportive of reopening?  Will they be able to comply with the relevant government guidance themselves?  How much of an impact will the landlord’s proposed restrictions to comply government advice have on their business?  Are the landlord’s proposals objectively reasonable?
  • Is it safe to reopen the premises – does the landlord have enough security and maintenance staff and cleaners?
  • The landlord’s insurance policy - does the landlord’s insurance policy contain any relevant provisions which have a bearing on the situation or need to be observed?  Landlords/managing agents should speak to their brokers for guidance on the terms of their policies.  
  • Publicity – how will the reopening be perceived by the wider locality and can the landlord communicate its reasons effectively?

In terms of how landlords can protect themselves:

  • Landlords should closely follow and comply with government guidance.
  • Landlords should keep a written record of their decision making which can be used to justify their approach in future, for example checking with Public Health England for their recommendations and keeping copies of information issued to employees and tenants on keeping safe.
  • Open and continuous communications with tenants regarding the landlord’s thinking is likely to be helpful.

2. Could landlords face claims from tenants if they voluntarily keep the premises closed or impose restrictions on use?

Possibly. If landlords choose to keep premises closed, or open premises but impose restrictions that have a material impact on the tenants’ use of the premises, they are potentially at risk of claims for breach of quiet enjoyment or derogation from grant. They would need to show that imposing restrictions or remaining closed is permitted. This will depend on analysis of a mixture of the terms of the leases and the factual circumstances.

For example, many leases will contain provisions that oblige the landlord to use “reasonable endeavours in accordance with the principles of good estate management” to provide the services.  The landlord may be able to argue that in these unprecedented circumstances, good estate management requires limitations on, or closure of, some or part of the common parts and that it is not “reasonable” to provide the services in full. Leases will often also contain carve outs of liability for inability to perform the services due to circumstances outside the landlord’s control. This should cover the situation where the landlord has insufficient staff to come in to perform all of services to keep the premises completely or partially open.

However, on the other hand, tenants who object to closures may well argue that their free and full right to access the premises is a legal right granted by the lease, which is separate from the landlord’s obligation to perform the services. This would mean that the carve outs regarding the obligations to provide services would not provide a defence if a landlord had denied (or possibly severely limited) access to the premises.

It is important therefore to consider the reservations in a lease. Many (if not most) well drafted leases will expressly reserve to the landlord the right to control the common areas or temporarily close these (although in some cases the reasons for such closure may be limited to repair).

In most cases it is likely that tenants will appreciate the difficult decisions facing landlords and dialogue can be established with them about the best way forward.  

Ultimately, it will depend on a case by case analysis of the lease terms alongside the factual circumstances.

A further point is that, if the tenant will not receive much custom anyway, because its customers are staying away, it may not be able to prove that it has suffered loss of profits as a result of the restrictions or closure.

3. Could landlords face claims for not imposing restrictions on use or for reopening premises?

There is also the flip side – could landlords face claims for not imposing restrictions on use or for reopening premises? Such claims may come from tenants, employees or from members of the public.

A landlord will, under the Occupiers Liability Act 1957, owe a duty to take such care as is reasonable in the circumstances to keep visitors to the common parts of the premises reasonably safe (but this will not apply to areas outside the landlord’s control, such as units demised to tenants).  As noted above, landlords also owe duties to their employees (although the full scope of obligations to employees is outside the scope of this note).

Satisfying this duty will involve following government guidance and adopting sensible precautions such as requiring social distancing, increased cleaning especially of commonly used surfaces and sending home employees who might have been exposed to the virus.  However, it is unlikely that a claim for contracting coronavirus would succeed against a landlord, as a claimant would find it impossible to prove where exactly they caught the disease, and a landlord is likely to be able to argue in its defence that it took reasonable care provided it is observing government guidance.  That said, as noted above, if third parties can see that landlords are not taking appropriate steps to follow government guidance they are likely to bring that to the attention of the authorities, which could involve both legal and reputational risk.

4. Service charge

Landlords should be able to recover the costs of increased cleaning of premises via the service charge.

Conclusion - Risk planning

Landlords are no doubt well advanced in their reopening strategy planning and should consider whether and when they will reopen premises.  In doing so they should consider how they will keep staff, tenants and visitors safe while the premises open.

Landlords should, where possible, maintain full and open communication with tenants and should try and address any legitimate tenant concerns. 

Finally, landlords should make sure that they are familiar with their insurance policies to check if this affects their proposed actions.

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