Coronavirus (COVID-19) and Commercial Property Legal FAQs
As we adapt to the changes that the coronavirus (COVID-19) is forcing on every aspect of life, we have compiled some FAQs on issues that may arise for our clients who are commercial property landlords and tenants.
This is a rapidly changing situation and many of these problems are completely new. Each situation will depend upon the details of your lease terms, so please contact us for specific advice as you need it.
Q 1 – If the premises let to a tenant have to close, will the lease be frustrated and come to an end?
Probably not. It is very difficult to establish under UK law that a lease has been frustrated, because the land itself still exists and can be used for something, even if not its intended use. Although tenants may not be able to carry on business at present, this is probably not enough to establish that a lease has been entirely frustrated, as the current interruption is likely to be temporary.
Q 2 – What is force majeure, and will it apply here?
In a general sense, ‘force majeure’ means events that the parties to a contract did not foresee and that are beyond their control. If a force majeure clause applies, the parties may not have to perform the contract as originally agreed. The problem is in deciding whether a particular event (such as COVID-19) is covered by the clause. Some contracts will have a detailed definition, so this is the place to start. There may also be a list of exclusions. Other clauses just have a general reference to force majeure, which makes them harder to interpret.
It is unusual to see a force majeure clause in a lease, although there may be one which says that the landlord need not provide services if prevented by force majeure. They are more common in building contracts, where they may entitle contractors to apply for extensions of time.
Q 3 – Can a tenant stop paying rent?
This will depend on what the lease says about when rent may be suspended but most leases will not provide for the current situation. Rent suspensions (often called rent cessers) usually apply where the property is unusable because it has been damaged by an insured risk. Although the impact of COVID-19 is immense and unprecedented, it is unlikely to constitute damage to the property. In practice, the landlord may be willing to agree to a temporary switch to monthly rent (instead of quarterly) or even a rent holiday for a fixed period. Arrangements like this must be carefully drafted, so speak to your solicitor first.
Q 4 – Is the Government doing anything to help commercial tenants?
Yes. As well as a holiday from business rates and VAT deferral, there will now be a temporary ban on landlords forfeiting a lease where the tenant has failed to make payments that are due. This will cover rent, service charge and, it seems, insurance contributions. The ban will be in effect until 30 June 2020. Note that the money due must still be paid, and the landlord will regain the right to forfeit once the ban is lifted. The aim is to create an immediate breathing space. Landlords will be pleased to hear that nothing they do while the ban is in place will be treated as waiving their right to forfeit at a later date.
Q 5 – Will insurance for loss of rent cover a few years?
Again, probably not, because it is usually triggered by damage to the property. Even tenants’ own business interruption insurance is usually linked to the business being adversely affected by damage to trading premises, although it is worth getting your solicitor to look carefully at your policy wording.
Q 6 – How will turnover rent be affected?
Clearly, most tenants’ turnover will reduce significantly in the current situation. Most leases with rents based on turnover will provide for a minimum base rent to be payable as well as the turnover element. That will probably continue to be payable for the reasons explained above, but the turnover element will be greatly reduced.
Q 7 – If a tenant closes premises despite a ‘keep open’ clause in the lease, what can the landlord do?
The landlord’s remedies in this situation will be quite limited. UK courts are very reluctant to grant injunctions forcing tenants to continue trading in normal circumstances and it is inconceivable that they would do so at present. That leaves the landlord with a possible claim for damages for breach of the lease, but it will be very difficult for the landlord to show measurable loss actually caused by the specific tenant closing rather than the wider circumstances.
Q 8 – If the landlord decides to close premises, will it be liable to tenants?
Under normal circumstances, the tenant would have a claim against the landlord for derogation from grant (in other words, denying the tenant its right to occupy under the lease). At present, it will be extremely difficult for tenants to show that they have suffered loss as a result of the landlord’s action, especially where the Government has ordered premises to close. The landlord may also have the right to close common parts where force majeure applies.
Q 9 – Does the landlord have health and safety obligations in relation to COVID-19 for property let to tenants?
A landlord’s general health and safety obligations will depend on whether it has control of any part of the property. A property fully occupied by a single tenant will primarily be that tenant’s responsibility. For multi-let properties, the landlord will usually be responsible for the common parts. The exact duties in relation to COVID-19 are unclear, because it seems to spread between humans not through parts of the building (such as a water system). Best practice for landlords is to follow current advice from Public Health England.
Q 10 – Can the landlord recover the cost of extra cleaning through the service charge?
This depends on how the service charge is drafted but most leases will cover the cost of cleaning and contain a general clause covering any unexpected expenses, to the extent that they are reasonable.
For further information, please contact Parnalls Commercial Property Team on 01566 772375 or email Enquiries@Parnalls.com
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
KATHERINE FLASHMAN KITSON CELEBRATING 25 YEARS AS A DIRECTOR OF PARNALLS
Do you know the difference between…
When to consider appointing a professional attorney
Should I get a cohabitation agreement?
The Need for Updating Wills
The Right to Make Noise
Ill-health pension transfer not liable for IHT
Legal Time Limits - why so important?
Would you pay a premium for a south-facing garden?
Video-witnessed wills to be made legal
New Planning Relaxation Is Not the Whole Storey
How to minimise delays in obtaining Grant of Probate
Could you benefit from the Green Homes Grant?
A SHOCK TO THE SYSTEM: new electrical safety regulations for residential tenancies
Property of Cornish residents who die without a will goes to Prince Charles
Does your lawyer progress your accident claim efficiently and provide you with a personal and professional service? Can i change solicitors for my accident claim?
What effect could the new changes to stamp duty have on property sales?
Preparing to sell your Launceston property
Staying safer in video meetings
Making Sure Your Great New Home Comes With Clean Air
Property Market Re-Opens in England
Coronavirus: Wills and Powers of Attorney FAQ
Medical Care Received Not Up to Scratch?
Had an Accident in Someone's Home?
Accident or Injury Involving a Dog?
Social Distancing No Obstacle for Parnall's Mobile Document Signing Team
Coronavirus (COVID-19) and Commercial Property Legal FAQs
Rent Charge Suspensions: Protecting Your Interests
Been Asked to Sign an Employment Settlement Agreement? Seek Advice Urgently...
Services Update: Continuity of Legal Service Provision
Advising You in Uncertain Times
Could carelessness on social media land you in court?
Is an electronic signature on a commercial property document acceptable?
What happens when there is no health & care LPA in place
Social Media Training for Businesses
Information to gather for your probate solicitor
Gazundering, what it is and how to avoid it
Relief from forfeiture – what happens if the tenant forgets to pay the rent?
Not so safe at work - compensation for an accident at work
New organ donation law: giving you control
Running a business from home
Have nude photos of you or your teenager been posted online?
Landowners’ rights and the Electronic Communications Code
Building in your back garden
Christmas is a time for giving (and inheritance planning)
Buying the freehold of your leasehold house
Redeveloping an empty pub for commercial use
Why it takes time to obtain the Grant of Probate
Social Media: The unconscious privacy threat
Is your reputation being threatened?
Making a will after your spouse or partner has died
Interns celebrate completion of internship at solicitors
Selling your home in a flat market, some top tips
Claiming compensation for a serious road traffic accident
New Media and Communications Court list reflects surge in internet defamation claims by Laura Baglow
Has your personal information been shared without your permission?
Planning your escape to the country, what you need to consider – part 2
Government consultation on new national model for shared ownership
Choosing a partnership structure
Planning for what happens when you die by Deborah Adams
Changes to legislation could offer protection for tenants in the private rental sector
Move to the country - Part One
The risks of DIY probate
Will your septic tank still be legal in January?
The death knell for ‘kiss and tell’?
Making a will when you retire
Selling your property at auction
Not looking so good - your guide to compensation for botched non-surgical cosmetic procedures
New threshold of seriousness in defamation proceedings
Legal considerations when building a granny annex
Choosing the right person for your power of attorney
Formal Interviews - Do you need legal representation?
Privacy rights and aerial images
Trustees’ duty to give information to beneficiaries
Five problems with a leasehold property
Taking your first commercial lease
Is your organisation protected from employee social media legal risk?
Have you been targeted by negative social media posts?
Farmers be alert when being inspected
Help for House Sellers?
Don’t let your digital assets end up in a digital grave
Valuing an estate for probate
Development proposals and your local authority search
What can you do if your child is injured in a serious accident
NetRights welcomes new protection for social media users
SHOULD I GET A LAWYER FOR A SPEEDING OFFENCE?
Supreme Court recognises that social media is a “casual medium” in libel battle
Choosing the best conveyancer who is right for you
Making a will after a second or subsequent marriage
Option or promotion agreement – which is best for landowners?
Anonymous pub and restaurant online reviews leave a bad taste
Have you had an accident involving a horse?
Help to Buy – beware of some cracks in the structure
Understanding Lasting Powers of Attorney
Changes to Energy Performance Certificate for Landlords
Had a cycling accident? Your route to obtaining compensation
New year, new home: tips to sell your home in the New Year
Tax Planning for your inheritance
Hearing loss: when your employer may be liable
Buying a home for your retirement, five things you need to consider
Farmers plan to diversify after Brexit
Ministers press ahead with probate fee shake-up - reports BBC News
Botched dental treatment? You may be entitled to compensation
Why a Health and Welfare Power of Attorney is a good idea
Will the new charge on building developments in Cornwall affect you?
Energy Performance Certificates – Do They Matter?
HMRC Challenging Stamp Duty Land Tax Payments
Ben Mitchell qualifies as a solicitor
The potential implications of Brexit on employment law
Appointing a guardian for your children
Houses in multiple occupation – new rules from October 2018
New Agriculture Bill published
Will Brexit affect my pension?
Dreaming of a holiday home? Sort out the legals before putting your feet up
Lasting Power of Attorney by Deborah Adams
Settled status after Brexit by Alexis Hager
How to choose an executor to administer your estate when you die
How overage agreements can boost profits from your land
Top tips for first-time buyers
How Could Brexit Affect My Farm?
Wills & Succession in Spain by Deborah Adams
Brexit – an international and local view by Alexis Hager, Litigation
Capital gains tax - important facts for non-residents of the UK
Buying a home: the importance of making sure the seller is entitled to sell
Changing a will after someone has died: it is possible and it could save you money
Your responsibilities when you have people working in your home
Sad passing of Battle of Britain pilot who served with Parnall family member
Considerations when buying a heritage property
Disciplinary proceedings at work: guide for employers
Employers should have a disciplinary process in place, but just following this may not be enough to avoid falling foul of the law and exposing yourself to the risk of an employment tribunal claim.