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17-04-2020

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General Overview

On the 3rd March 2020 the government published its Coronavirus COVID-19 action plan www.gov.uk/government/publications/coronavirus-action-plan. The plan provided the public with information as to how the government plans to contain the virus, what action will be taken if the virus spreads and what people can do to protect themselves and their families.

On the 23rd March 2020 the government introduced a further three measures which included:

  1. Closing non-essential shops, community spaces and places of worship.
  2. Requiring people to stay at home (save for a few very limited purposes).
  3. Stopping gatherings of more than two people in public.

If these measures are breached the police and other relevant authorities have the power to disperse such gatherings or impose fines upon the guilty party.

Practical implications for Landlords and Tenants

1. Force Majeure and the Law of Frustration:

Force Majeure is defined as “unforeseeable circumstances that prevent someone from fulfilling a contract”. The generally accepted market position is that commercial leases will not include any form of Force Majeure clause enabling either party to end the lease. This therefore does not offer any comfort presently to Tenants that cannot occupy their property and accordingly have ceased to trade or operate as the headline rent under the lease will still be payable when it becomes due. However, that being said, it is now entirely conceivable that going forward such a position will change and that solicitors acting on behalf Tenants will seek to incorporate into the lease a provision whereby rent (and other payments due under the lease) are suspended in such unforeseen circumstances. It will be very interesting to see if the generally accepted position in this regard changes in the future but this of course does not offer any comfort to current commercial Tenants.

A contract will deemed to be frustrated if an event occurs which renders it impossible for a contractual obligation to be performed. The doctrine of frustration may possibly be considered by a Tenant experiencing difficulties in paying rent as in accordance with the prevalent government legislation and guidance, many Tenants can now not occupy the Property demised in their lease. Unfortunately there are two significant difficulties for a Tenant in this regard, firstly there are no reported cases of a commercial lease ever having been successfully determined pursuant to the doctrine of frustration and perhaps of more importance in the context of the current Coronavirus COVID-19 outbreak a Tenant’s preclusion from occupying the subject property will only be for a temporary (however long or short a period of time that may be) and not a permanent period of time. 

The conclusion therefore that should be drawn is that if the lease does not incorporate a forthcoming lease event i.e. a break date or lease expiry date then it will be very difficult for a Tenant to terminate a commercial lease unilaterally.

2. Landlord’s right of re-entry or forfeiture:

The Coronavirus Act 2020, which became law on the 25th March 2020 suspended a Landlord’s right of re-entry or forfeiture for non-payment of rent (this is for a period from the 26th March 2020 until the 30th June 2020 – although this period could be extended). During this period no order for possession can be enforced by the courts and this will of course offer significant comfort to any Tenant experiencing difficulties in complying with its obligation to pay the headline rent under the lease.

On a separate point during this period a Landlord will not be deemed to have waived its right of forfeiture or re-entry unless this is given expressly to the Tenant in writing.

3. Tenant’s obligation to remain open:

Most commercial leases with a retail or leisure use will impose on the Tenant an obligation to remain open. However and potentially in conflict with this provision is an obligation by the Tenant to comply with prevalent legal statutory requirements. On that basis one must assume that by ceasing to trade or operate in accordance and compliance with the government’s Coronavirus Covid-19 action plan a Tenant is not in breach of its obligation to remain open as the obligation to comply with legal requirements must surely take precedence over an obligation to remain open.

Further consideration may need to be given if the user clause in the lease was for a use which was exempt from the ceasing to operate / trade provisions of the government action plan. Such uses include but are not limited to the use of commercial property as supermarkets, DIY stores, funeral directors, chemists etc. It will however be interesting to see the approach taken by courts in the future if this position is ever considered.

If you are the Landlord or a Tenant of an existing lease or are looking to either grant or take a new  lease in the future and have any questions or queries then please do not hesitate to contact Barnaby Heap who is a commercial property lawyer at Moon Beever LLP with over 16 years post qualification experience. bheap@moonbeever.com

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