We all know the coronavirus has been a significant challenge for the entire world – with the situation rapidly evolving. This has had an effect on everyone, including businesses and landlords. However, with the right guidance to protect your interests this can lead to unlocking potential and opportunities.
Here are some answers to some key frequently asked questions to safeguard your business as much as possible going forwards.
What insurance protections are there?
Most leases contain a provision whereby a tenant is to pay an insurance premium to their landlords for insured risks. If the definition of insured risks is wide enough it may contain cover for pandemic events (such as with some business interruption insurance). If your policy covers such an insured risk then there may be an ability in the lease, which would entitle the tenant to a rent suspension.
Do I have to abide by opening hours covenants?
You will find in modern leases, especially for retail property, that there are obligations on the tenant to keep the property open during specific working hours. Given the government’s recent guidelines to prevent the spread of virus this could cause an issue or dispute between landlord and tenant. It is also important to consider that most leases will also contain a provision to comply with statue and therefore in the event, the quarantine or lockdown is only for essential businesses, any non-essential businesses could hardly be criticised for breach of obligation following government advice. However, in all cases, the exact terms of the lease would require careful review.
Can I use my premises as a takeaway as these are currently remaining open?
Planning law (Town and Country Planning (Use Classes) Order 1987) puts buildings into categories known as “use classes”. Hot food takeaways in England are A5. A change of use from pub or restaurant to hot food takeaway will normally require planning permission, however It is understood that a new permitted development right has been introduced to give greater flexibility for food and drink businesses that have been required to close to allow for the provision of takeaway food where the current use falls into class A3 (restaurants and cafes), class A4 (drinking establishments) or a mixed use combining A3 and A4. Tenants will still need to comply with any use restrictions set out in the lease unless an agreement can be reached with the landlord and ensure they qualify for the permitted development right, which the team at Schofield Sweeney can help with.
Can a lease be brought to an end because of the impact of Covid-19?
Ending a lease, or refusing to enter into a new one, solely on the basis of an intervening event, could only arise in very exceptional circumstances. With regard to Covid-19, landlords and tenants should refer to the express terms of their leases to ascertain whether the present circumstances are likely to be covered. Where appropriate, landlords and tenants should seek professional advice on force majeure.
Can costs relating to additional services be recovered through service charge provisions in the lease due to Covid-19?
Whether these may be recoverable depends on wording in the particular lease and on any potential barriers or limits to recovery. We can advise you on the interpretation of that wording.
What are the risks for landlords, tenants, buyers and sellers if proceeding with property transactions in the current circumstances?
There could be some delays, availability of finance, landlord and tenant works and exposure of the premises, parties and employers/employees to Covid-19.
What are the solutions?
Our team of solicitors can provide the contractual protection to clients in need to proceed with property transactions.
- Engage with landlord or tenant to agree concessions – ensuring these are documented clearly and signed by all parties.
- Review obligations in leases and construction contracts.
- Consider whether it is better to give a rent reduction in leases than lose tenants.
- Consider alternative payment arrangements deferring rents over a specified period of time?
- Always keep your bank informed – as to any changes in terms – it is highly likely that the bank will need to know about this and consent to this.
- Keep talking with all parties – we are in this together.
Need advice in relation to your commercial property, we’re here to help – get in touch.