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Some commercial leases, particularly those in the retail sector, will contain contractual obligations about how tenants must conduct their business. One example is a keep-open clause, which details certain operating hours a business must follow. Ignoring a keep-open clause puts you at risk of breaching your commercial lease. This article will explain keep-open clauses in a commercial lease.
What is a Commercial Lease Agreement?
A commercial lease agreement is a legally binding contract between a commercial landlord and their tenant. It details the rights and obligations of both parties in a lease. For example, the lease agreement will describe the following:
- the lease term;
- repair and maintenance responsibilities;
- termination rights; and
- rent rate.
A commercial lease agreement may also detail a keep-open clause.
What Are Keep-Open Clauses?
A keep-open clause is a commercial lease provision specifying a tenant’s obligation to keep the premises open and trading during specific hours throughout the lease term. Typically, these hours will align with regular business trading hours. It applies mainly to retail premises and restaurants.
Additionally, a keep-open clause might state that the tenant must keep the front of the premises tidy, inviting and lit during these hours. Keep-open clauses are common in shopping centres due to the impact a closed business can have on other businesses in the centre.
You will typically find keep-open clauses in a commercial lease with turnover rent. In addition to a base rent or open market value rent, the tenant pays a second rent, which usually reflects an agreed percentage of their turnover. A keep-open clause is reasonable in these leases. Without it, a tenant may not open for business at prime times, depriving the landlord of the turnover event they might otherwise have had.
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Exceptions to Keep-Open Clauses
Although a keep-open clause requires a business in commercial premises to keep the business open during specific times, it may include a provision for exceptions to this rule, including:
- where keeping the business premises open would conflict with legal requirements, such as health and safety laws;
- for a reasonable period during the transfer of a lease or when the tenant grants the sublease;
- for a reasonable period for work to take place on the premises, such as alterations or repairs;
- where there is damage to the commercial premises, making it impossible to open;
- for a reasonable period to allow for staff training or stocktaking; or
- due to reasons outside the tenant’s control, such as a strike.
Penalties for Breach
Where tenants breach a keep-open clause, their commercial lease agreement may have a lease provision that obligates them to pay a penalty. It is fair to include this provision, but the penalty should not be too harsh or unreasonable. The purpose of the provision is to provide a landlord with any lost rent for when the premises are shut. Therefore, the following clauses in a commercial lease would not be acceptable:
- to pay the average lost amount of turnover rent and 100% of the open-market rent; or
- to pay 125% of the open market rent value rate.
Notably, penalties for keep-open clauses can be challenging to enforce in the courts. Courts tend to only do so where either:
- the commercial premises is an ‘anchor store’; or
- the effect of the business premises not staying open is detrimental to the rest of the business in a high street or a shopping centre.
This cheat sheet outlines what you should be aware of in your lease agreement.
Key Takeaways
A keep-open clause is typical for commercial leases concerning retail businesses or restaurants. It states that a tenant must trade and keep the business open during specific hours. Keep-open clauses are commonplace where the landlord charges a turnover rent in addition to the base rent. This is because not keeping the business open can affect the rent a landlord receives. A keep-open clause can also include exclusions and penalties for breaches.
If you need help understanding keep-open clauses in commercial leases, our experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
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