Business as Usual: The rights and wrongs of closing a building for COVID-19

13 March 2020

Author: Emma Cooper
Practice Area: COVID-19 , Real Estate

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Carson McDowell has received a growing number of queries from landlords and tenants as the COVID-19 situation develops. Emma Cooper, a partner in our Real Estate team, has collated responses to some of the most common issues below as a reference guide.

Recommendations:

  • Landlord / managing agent and tenant engagement is vital at this time.
  • If the landlord has difficulty providing services due to COVID-19 employee / agent concerns, alternative services should be provided where possible. If they cannot be provided, tenants should be notified with reasons as to why the services cannot be provided.
  • Multi-let buildings should not be closed by a landlord unless government policy, the Public Health Agency, or other statutory body requires closure for any COVID-19 reason. Such closures should be as short as reasonably necessary.
  • Rents should not be suspended unless the lease specifically provides that this is an event allowing a rent suspension or an insured risk.
  • GDPR must be adhered to when information is to be shared between landlord / managing agents / tenants regarding possible COVID-19 cases.

Guidance:

Are the premises in a single let building or multi-let?

Single let

  • If single let with no landlord services required, an occupier may decide to close its offices as it sees fit and must do so if required by government policy, the Public Health Agency, or other statutory body.
  • If the tenant relies on landlord services to operate, it is likely that the landlord is only obliged to use ‘reasonable endeavours’ to provide the services. If the landlord reasonably has reduced staff / resources staff due to COVID-19 and has demonstrated that it cannot reasonably provide or resource all or part of the services, the tenant will have little recourse for non-provision of services. If the tenant provides the necessary services to the building the tenant is not likely to be successful in a reclaim costs from the landlord, unless previously agreed.
  • The tenant will be obliged to comply with all statutory obligations and by-laws. If government policy requires closure, the tenant must comply.

Multi-let (landlord controls common parts and accesses)

  • Landlord must comply with its obligations in the lease to allow access to the premises over common parts and to provide the building services at all times or the times stated in the lease.
  • Landlord may be restricted in providing building services but this should not impede access to the premises. Landlord should consider alternative / reduced services if it is reasonably unable to provide the building services due to COVID-19. Tenant consultation should be maintained.
  • Landlord is obliged to allow the tenant to enjoy the premises ‘with quiet enjoyment’ and not to ‘derogate from its grant’. The purposes of these landlord obligations is not to interfere with the tenant’s use of the premises.
  • If a landlord / managing agent closes a building without government advice or a similar Public Health Agency policy, the landlord is preventing the tenant from enjoying and using the premises. The landlord faces potential tenant action in this circumstance and damages for breach of landlord covenants. Any such closure should only be made with consultation and engagement of the tenants.
  • It is a reasonable defence to a building closure and breach of landlord obligations if this was done on the advice of the Public Health Agency or other government department because of a confirmed case of COVID-19 or required deep cleansing. The landlord must show that it has taken proper action to keep the building closed only for such reasonable time period as possible.
  • A tenant is responsible for compliance with statutory and policy obligations within its own demise and must close its premises if required to do so even if the rest of the building is not required to be closed.

Payment of Rent:

  • There are no grounds for the tenant to withhold rent or service charge contributions in the event of a building or premises closure for COVID-19 or equal measures unless the lease specifically states that rent can be suspended, usually where a landlord’s insurance policy covers a specific risk.
  • Both landlord and tenant should review the landlord’s policy to ensure that disease is not an event of rent suspension. Tenant must review its own business interruption insurance.

If you have any queries please contact the Real Estate team at Carson McDowell.

*Advice as at 12 March 2020. Updated advice will be circulated as and when any position changes.

*Advices based on a standard commercial lease. Each lease should be reviewed if any concerns as to service arrangements, access and landlord obligations.

* The guidance provided in this document is based on our interpretation of the general position in most commercial leases. As the legal position regarding COVID-19 is continually evolving, custom and practice may change and the legal position of the parties may change. We will continue to update our guidance accordingly.

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