Commercial Lease Pandemic Clauses
Following the events of the past year or so there has been much discussion surrounding the competing interests between a commercial landlord and tenant.
The economic implications of COVID-19, the threat of future lockdowns and how best to protect these competing interests are very much at the forefront of lease negotiations.
Whilst several measures have been introduced by the Government to provide forms of support to commercial tenants, the inclusion of ‘future lockdown protection clauses’, has been the topic of discussion more recently.
The fairness of such a clause was considered in the recent County Court case of Poundland v Toplain Ltd. Kimberley Fox, a solicitor in our Property Department, discusses this further.
Facts of the case
The tenant in this case, Poundland, sought to include a new term within their renewal lease which would reduce the annual rent and service charge by 50% during any “use prevention measures”. Amongst other factors, it was argued that the inclusion of such a clause, was simply modernising the existing lease terms.
The landlord rejected this request on the basis that there was no market precedent for the incorporation of such a term, and it would significantly change the commercial relationship between the landlord and tenant. The landlord further argued that any future lockdown would be governed by the relevant legislation, as has been the case since the beginning of the pandemic.
Due to the disagreement as to the inclusion of the additional term, the matter was to be determined by the Court under the Landlord and Tenant Act 1954, which provides the Court with discretion to determine the terms of a renewal lease when the parties cannot agree on a specific clause.
When reviewing the facts of the case, it was noted that any departure from the terms of the existing lease must be fair and reasonable for both parties, it was for the party seeking such changes to the terms to justify the change and it was noted that the purpose of the legislation was not to shield the tenant from commercial or trading risks or to reallocate those risks to the landlord.
The Court held, that it would not be reasonable to introduce such a clause here, as the landlord could not be expected to share the risk in a situation within which they would have no control and where the tenant could benefit from Government relief schemes.
Whilst the introduction of a ‘future lockdown protection clause’ may be considered and agreed upon by parties entering a new Lease, this case demonstrates that where the matter concerns a lease renewal such clauses may not be agreed or indeed enforced where such a clause was previously absent.
This case further highlights the importance of discussing any lease terms, or indeed any changes or additions to any lease terms early on. Some tenants may decide it is more beneficial to request a new lease, or indeed look for a new premises where they can negotiate the inclusion of such a ‘future lockdown protection clause’.