Table of Contents
After the pandemic, many companies could not pay their rent to their commercial landlords. Commercial lease agreements rarely cater for such an unplanned situation. However, commercial landlords and tenants are now introducing pandemic clauses to their new leases. You may find it helpful to include one in your commercial lease agreement; without one, you may need a county court to determine the situation. This article will explain a pandemic clause in commercial leases in the UK.
Commercial Lease
When a company runs their business from commercial premises, it may have a commercial lease. This is where the business occupies the landlord’s property for a fixed term in return for rental payments.
A commercial lease agreement governs a commercial lease. It is a written binding contract between the two parties with details of their rights and obligations. These are in the covenants and clauses within the lease agreement.
Pandemic Clause
A pandemic clause recognises that legislation or Government intervention might prevent a commercial tenant from trading on their premises where restrictions exist. This includes a lockdown and accounts for the fact that the tenant might cease trading and the premises left vacant. Usually, this vacancy of premises is not permitted otherwise.
People may refer to these as ‘covid clauses’ or ‘force majeure clauses’. The latter is where the landlord and tenant have agreed that the lease agreement can be varied or even suspended where particular exceptional circumstances occur.
The content of a pandemic clause will vary depending on what the parties to the commercial lease wish it to contain. It is, therefore, essential to consider the scope of any pandemic clause before considering one in a commercial lease.
You should note that you do not have to limit pandemic clauses to Covid-19 alone but could include all infectious diseases. Typical contents of a pandemic clause may be as follows:
- rent suspension, which means that there is a delay or reduction in the rent payments for the commercial tenant during restrictions;
- particular obligations in the commercial lease are suspended during restrictions such as the commercial landlord’s repair obligations;
- paying rent in arrears instead of the advance payments as the lease stipulates;
- a tenant no longer needs to abide by the insurer’s requirements; and
- an ability to terminate the commercial lease should there be non-performance or continuous delay of performance of the lease agreement.
Call 0808 196 8584 for urgent assistance.
Otherwise, complete this form and we will contact you within one business day.
Negotiating a Pandemic Clause?
A pandemic clause allows the landlord and tenant to share the loss restrictions may cause to a tenant’s business. It also helps to manage the relationship between both parties.
If you want to include a pandemic clause in your commercial lease agreement, you should negotiate it with the other party during the heads of terms stage. If you wait until you draft the commercial lease agreement, it may delay the commercial lease. Also, the wording of pandemic clauses is still very new and varies between commercial leases, as no market standard is currently in use. Negotiating during heads of terms risks losing the intended protection through poor drafting.
When you negotiate a pandemic clause, you should think about critical points such as:
- rental amount in terms of any changes to it, such as delays, suspension or concessions;
- timeframes for variations to the commercial lease;
- whether you wish to include a description of the impact of restrictions that can trigger the clause, such as delays and prevention;
- that the pandemic clause will not operate when the commercial tenant is still able to run their business in some form from the commercial premises, such as a takeaway instead of a restaurant;
Key Takeaways
Whether a commercial landlord or a commercial tenant, you must be aware of pandemic clauses. This will help you decide if you wish to negotiate one during the heads of terms of your commercial lease. It can be helpful to include in a lease agreement to help both parties to know what applies during a restriction and to share the commercial tenant’s business loss over that period. The wording of a pandemic clause will determine exactly what it covers, for instance:
- a rent reduction or suspension during restrictions or
- the ability to terminate the lease agreement.
Pandemic clauses will also detail when they are triggered. For example, they may describe the impact the restriction should have on the tenant’s business for the clause to apply.
If you need help understanding pandemic clauses in a commercial lease in the UK, LegalVision’s 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. So call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
A commercial lease agreement is a written binding contract between a commercial landlord and a commercial tenant containing all the commercial lease details.
A pandemic clause in a commercial lease in the UK is a clause which comes into effect when there are restrictions in place due to a pandemic. What it covers will depend on the wording of the clause.
We appreciate your feedback – your submission has been successfully received.
