COMMERCIAL LEASES IN THE AGE OF LOCKDOWN – LANDLORD AND TENANT ISSUES
there is no direct Government assistance for Landlords or Tenants affected by
the lockdown, apart from wage subsidies and banking support (including
Government backed guarantees).
leases contain what is known as a “no
access in an emergency” clause. This
clause provides that if:
- there is an emergency; and
- the tenant is unable to gain access to the premises to fully conduct the Tenant’s business from the premises because of reasons of safety of the public or property or related to the emergency;
tenant may claim an abatement of a “fair
proportion” of the rent and outgoings for as long as the tenant cannot
access the premises due to the emergency.
has been a fair amount of discussion about whether tenants can now make a claim
under this clause.
view is yes, they can. Since the
Government COVID-19 response escalated to Level 4 from 25th March
2020, with all non-essential business directed to close their places of work,
most tenants should be able to claim a rent and outgoings abatement if:
- they are on a form of lease that contains this
clause (which is found in an unamended ADLS lease form since 2012 at clause
- they do not operate an essential service from
ability to abate rent and outgoings (for non-essential business) could provide
some significant relief to those businesses.
Clause 27 and You
the optimal situation is for a Landlord and Tenant to negotiate early on. But there are also fallacious interpretations
of clause 27 circulating, based on an incorrect reading of clause 27. The message that Tenants can simply avoid
paying rent arises from a misinterpretation; it is also unreasonable as
Landlords have fixed costs that must be met.
Fairness is a two way street.
specific fine print in clause 27.5 states “a
fair proportion of the rent and outgoings shall cease to be payable”. As with most contractual disputes, the
outcome depends on a few key words, adopting a plain reading and having regard
to context. The obvious issue is the
meaning of “fair proportion”.
What is Fair?
“Fairness” is unlikely to mean zero. The
same ADLS lease includes an arbitration clause.
So if negotiations have failed and if this clause hasn’t been removed
then the parties have agreed to refer all disputes to an arbitrator and not the
Court. It could then be open for a Tenant
to argue that in contractually providing for an arbitrator, the parties have
implicitly included the following wording into clause 27:
parties agree that if they cannot agree on what constitutes a fair proportion
of rent and outgoings for this clause then they shall appoint an arbitrator who
shall determine what a fair proportion is, acting reasonably.”
what is a fair proportion in this context? We would argue that this would be produced by
a suitable valuer adopting the overriding economic arguments relating to the
business and its use of the premises. In
essence, an economic analysis of the nexus between the use – or loss of
tenant’s use – and the tenant’s business.
Different Tenants Are affected Differently
economic impact of COVID-19 has been uneven across industries. For example, if the tenant was a restaurant,
then you would expect the use and business would be completely linked. Many such businesses have ended with the
lockdown, so it would be fair for the tenant to have a substantial rent
reduction – even as high as 100%.
However, it may require an assessment of the business once all of the
available subsidies and government supported banking facilities have been
if the tenant was a professional services firm, that had all its staff working
remotely and the premises had little or no nexus with their business then the
fair proportion could be nil. Any loss
in business could be attributed to normal business factors outside of the
premises, which do not necessarily fall under the Landlord’s purview.
Where Do My Rights Stand as a Landlord?
without amendment, the ADLS lease does not allow the Tenant to unilaterally
stop paying the entirety or part of the rent.
It can only do this by agreement, with a Court Order; or as determined
by an arbitration. Working through such
situations in these times is at the Landlord’s discretion, and any agreement
with Tenants should be recorded in writing – deeds are preferable but may not
be practical under the current climate.
For consultation around your
individual circumstances, don’t hesitate to contact us.