The pandemic has dragged on for a lot longer than most people expected. Unfortunately, that means that the damaging knock-on effects to the economy have dragged on with it.
Times are particularly tough in sectors such as hospitality and retail, but across all businesses, it can be said that the future has become clouded with a greater deal of uncertainty than before.
With this in mind, negotiating a new commercial lease for your business premises is a difficult task; this article looks at some ways you can consider mitigating the danger of the unknown.
Term
The obvious advice here is for tenants to seek out a shorter term, with an aim to renew their lease again when market conditions become more certain – which will hopefully only be in a year or two down the line.
If no consensus can be reached between the parties on how long to set the new term for, if benefiting from the Landlord & Tenant Act 1954 provisions, s.33 of the Act instructs the Court to renew the tenancy for a length that is ‘reasonable in all the circumstances’ and that does not exceed 15 years.
In the case of Rumbelows Ltd v Tameside Metropolitan Borough Council [1994] the Court accepted a tenant’s concerns that a long term should not be ordered because of their doubts over their business’s future profitability. This suggests the courts will be looking sympathetically on COVID-related worries to future business viability when deciding on a new term.
Break clauses
If it looks like a long term is to be agreed, one way of mitigating this is to negotiate a break clause into the new lease. A break clause is a provision that enables a landlord or a tenant to end a lease early if certain conditions are met.
A break clause could give tenants a convenient way out of the lease if things go poorly in the next few years, but they offer little advantage to landlords. Taking this into account, the House of Lords in O’May v City of London Real Property [1977] laid down the precedent that it is for tenants to justify the inclusion of this term – and like with term – the Court will then look at all the relevant circumstances to reach a decision.
Rent
One useful option to consider for landlords and tenants alike in negotiating a new commercial lease – is incorporating Turnover Rent provisions. More details are available at www.wilsonbrowne.co.uk/turnover-rent
Alternatively, tenants could attempt to negotiate a COVID-related rent suspension clause into the lease. This could explicitly define certain times when rent payments are suspended in the pandemic.
Other obligations
When renewing a lease on the same terms as before one may wish to double check if there any obligations that would be best removed in the current climate.
It is not uncommon for commercial leases (especially in retail units) to include clauses requiring physical occupancy of the premises, set opening times and various insurance provisions be fulfilled.
These obligations may all become impossible to fulfil during either a national lockdown or during the Government’s favoured tier system. Removing or modifying these clauses upon renegotiation may save disputes down the line.
There are plenty of clauses tenants can attempt to negotiate into a new lease to protect them in the uncertain times ahead. Whether or not an agreement can be reached is another matter, but with the current economic climate, some commercial landlords are keen to keep tenants in occupation at all costs. This may mean that there is a lot more room for negotiation and compromise than one might think.
Contact George Iles at Wilson Browne Solicitors on 0800 088 6004
Trainee Solicitor
Wilson Browne Solicitors
