Landlords and Tenants: navigating through commercial property in a COVID era

Since March, the COVID-19 pandemic has had an unprecedented impact across the globe. The UK Government has introduced the Coronavirus Act 2020 and as we near a return to the working environment, the Commercial Property team at Grant Saw assess the implications for you and your business premises.

What impact will Government Health and Safety Measures have on business premises?

Provision of services should take account of the restrictions and requirements for social distancing under the Coronavirus Act 2020 and guidance from Public Health England which is reviewed and updated regularly. To date, we have experienced a 2m social distancing policy which has since changed to 1m plus.

Social distancing requirements will need to be addressed in common areas of multi-let premises such as foyers, corridors, break out areas and lifts. Landlords will also be responsible for the review of fire evacuation procedures and both limiting and regularly sanitising ‘touch points’.

Parties should check their lease provisions and obtain any necessary consents before carrying out any form of works.

How will COVID-19 impact service charges?

Service charges in new leases will be examined in greater detail. Tenants may want to consider seeking service charge caps to protect their businesses against increased costs from protective measures such as the installation of screens and antibacterial cleaning facilities, more regular waste collection and a more frequent cleaning schedule. Landlords may want to consider seeking broader service charge provisions to allow them to recoup costs associated with making the building or estate COVID compliant.

What can you expect from new lease negotiations?

Parties will need to conduct a thorough review of insurance provisions and decide whether a rent suspension should take effect in the event of a pandemic or whether a force majeure clause is required. Very few leases currently contain a force majeure clause that could allow either party to say that the obligations in the lease are suspended because of COVID-19. Landlords may now come under increased pressure to accept such clauses.

We would advise that all parties check lease terms to assess any upcoming lease expiry, rent review and/or break dates. If a tenant has a contractual break within the lease, the COVID-19 pandemic may make it more likely that the tenant exercises that break.

What impact will COVID-19 have on current rents and new rent negotiations?

We would advise landlords and tenants to discuss rental repayment arrangements. This may include temporary rent concessions that include an interest-free rent suspension, a rent reduction or, where a tenant has already fallen in to arrears, an alternative payment schedule to allow the tenant time to catch up. These measures help to avoid tenant insolvency.

We have seen a lot of discussion on the possible rise in popularity of ‘turnover rents’, particularly for retail and leisure buildings. This facility mitigates risk for a tenant during periods of difficultly and allows both parties to share in the upside when a tenant’s business is prospering. Careful drafting is key to protect both parties. Turnover rents give the landlord greater certainty that its tenant will be working hard to achieve the best rent for the premises, and setting a base level rent provides the landlord with reassurance that the rent will not fall below a certain level.

If you require any expert legal advice, please do not hesitate to contact the commercial property team via email or contact us directly on 020 8858 6971.