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.
To read the full article, including a section where Fiona looks at specific covid clauses that could be included within a commercial lease, click here.