What does the presence of COVID-19 mean for owners and occupiers of commercial properties? Part 224 March, 2020
There is no “cooling off” period available in times of crisis as far as the Landlord and Tenant relationship is concerned.
Landlord and Tenant relationship
The Landlord and Tenant relationship is governed by the lease agreement itself and in circumstances such as those we are experiencing at the moment the status quo is preserved. There no is no law that overrides how the contractual arrangement entered into between a landlord and tenant should be performed in times of crisis such as the public health crisis we are experiencing at the moment.
The current crisis and how it impacts on a tenant’s ability to comply with certain of its covenants is likely to come under the microscope in the short term. Depending on the nature of the building the subject of a lease agreement a tenant may find itself in unprecedented territory as to its obligations. For example, the lease of a retail unit is likely to contain a covenant that the tenant is obliged keep open the unit on a continuous basis or the lease of an office or warehouse may provide it is not to be left unoccupied for a continuous period (usually 21 days but can vary). In circumstances where the retail unit is the subject of a closure order, what remedies are open to the tenant?
An argument could be made that the lease has been “frustrated” i.e. incapable of being performed by reason of a fundamental matter going to the heart of the contract. The counter argument to that is that any closure order is likely to be temporary in nature and so it is likely that there will come a time when the closure is lifted. Is this a “force majeure” event? Some lease agreements contain “force majeure” clauses (excusing non-performance of an obligation on grounds of a major intervening act). These options could be relevant but force majeure clause are not typically common in commercial lease agreements.
Rent must also continue to be paid irrespective of outside factors. If the tenant suffers financial hardship there is no “out” unless there is an upcoming break option or there is reserved in the lease itself the right to assign or sub-let subject to Landlord’s consent.
Notwithstanding the provisions of a lease agreement in times of uncertainty communication between the parties is the best approach to navigate through the choppy period we are currently in the midst of.
This note is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters raised in this article.
About The Authors
Julian was admitted as a solicitor in 2002 and joined Flynn O’Driscoll as a Partner with responsibility for Litigation and Property related matters in December 2011. Prior to joining Flynn O’Driscoll, Julian established and operated his own legal firm for many years….
Majella joined the firm in June 2018 and works in the Property Department. Majella has considerable experience in both commercial and residential conveyancing transactions….