Coronavirus and Commercial Leasehold obligations
Is it possible to terminate a commercial lease, or avoid leasehold obligations, by reason of Coronavirus?
Commercial Leases do not usually include a termination provision, or even a force majeure clause
A National crisis, such as Coronavirus, by itself does not give a party an entitlement to terminate a Lease
If a Lease does contain a force majeure clause, whether a National crisis of a disease, or virus would entitle a party to terminate a Lease, or, more likely, excuse the non-performance of a leasehold obligation will depend on the wording of the clause; in short, words such as, “disease”, “virus”, “epidemic”, “pandemic” would have to be mentioned as events that would trigger the application of the clause
It is thought that even if the wording of a force majeure clause is of assistance, it would be unlikely to entitle a party to terminate a Lease. Coronavirus is seen as a temporary event. This is not to dismiss the significance of Coronavirus, or the loss of human life, but in the context of the present lockdown, which is the main reason why parties may want to terminate a Lease or excuse the non-performance of a leasehold obligation, it is likely to last 2-3 months only
Many businesses are able to work remotely, with employees working from home, or subject to a skeleton staff. Accordingly, businesses are trading, albeit not in full occupation of their businesses premises, and non-performance of a leasehold obligation will have to be assessed with this background
It is thought that whilst the Courts will not excuse non-performance of a leasehold obligation, (which put a party in breach of lease) discretion will be exercised by Judges in that party’s favour, where performance of leasehold obligations has been inhibited or temporarily prevented by reason of Coronavirus
Would a National crisis, such as Coronavirus not frustrate a party’s ability, without fault, to comply with its leasehold obligations, (to the extent that those leasehold obligations are not capable of being performed, by reason of the unforeseen event that is Coronavirus, resulting in the obligations under the Lease being radically different from those contemplated by the parties at the commencement of the Lease)?
Frustration brings a contract, such as a Lease, to an end immediately and automatically, if proven; however, for the above-stated reasons it is not thought that Coronavirus is an event that causes performance to be impossible. It only inhibits, or temporarily prevents the performance of leasehold obligations
Would non-performance of a leasehold obligation, by reason of Coronavirus, entitle a party to accept the other party’s breach as a repudiatory breach in termination of the Lease? Perhaps in circumstances where a landlord fails to provide services, as required by the Lease?
Again, it is thought unlikely that the Courts will hold that a repudiatory breach has arisen, capable of being accepted by the other party where performance has only been inhibited, or temporarily prevented by reason of the Coronavirus
Warnings to commercial tenants and landlords …
For the above-stated reasons tenants must pay their rent to avoid forfeiture, (i.e. an end) of the Lease and a debt claim for the non-payment of rent
Time of the essence clauses, such as rent review provisions must be adhered to by landlords, as it is thought that the Courts will expect strict compliance in the context of many businesses being able to work remotely, with employees working from home, or subject to a skeleton staff, to include landlord’s solicitors and surveyors