Post Covid - Rent and other issues for Commercial Property Leasing
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As we “ease out” (fingers crossed) of the pandemic restrictions, with non-essential retail now beginning to open up and even the prospect of indoor hospitality being available in the next short while, parties will need to get to grips with the consequences of the pandemic for landlord/tenant relationships, and indeed lessons to be learnt and applied for the future.
One big issue is how landlords and tenants alike will deal with any future pandemic related restrictions, and whether new or renewed leases should take into account or specify how both landlord and tenant obligations and rights can be exercised or suspended because of future pandemic restrictions.
There is a whole range of issues across the board to be considered here including:
a. Full or partial suspension or waiver of rent (and possibly other financial commitments). Would suspension be dependent on trading conditions, local or national restrictions or recommendations, or unilateral decisions to open/close made by the tenant/landlord?
b. The duration of the suspension/waiver. What triggers suspension, and the end of the suspension?
a. Especially where there is a multilet, and only partial shutdown, services may still need to be provided, and so a landlord may need to continue charging for some services at least.
b. Should there be specific provisions allowing for reduction of landlord obligations (for instance can the landlord decide to reduce/retain or stop services if triggered by restrictions under government recommendation or requirement, or even make unilateral decisions regarding provision of services?).
Account for Support Received
Should tenants be obliged to account to their landlord in the event of getting government supports regarding rent or rates relief for instance, while benefitting from a rent suspension or waiver?
Similar to insurance/reinstatment provisions, should there be a cut off date allowing landlord and/or tenant to terminate a lease in the event of prolonged closure/rent suspension?
Impact on New Leases
a. To what extent could a tenant argue at lease renewal that rent suspension (and the issues raised – see above) should be factored into the terms and conditions of a new lease?
b. To what extent should the assumptions and disregards in a rent review clause be considered in the light of how the lease deals with rent suspension or waiver in the event of government mandated closure or the like?
There is plenty to think about here in the coming months, and advisors should be live to the issues involved.