Communication is key as landlords and their tenants act to fight Coronavirus

Tom’s advice is:

The starting point: Landlords and tenants should review the terms of their leases in order to ensure they understand their obligations, and the obligations of others.

Responsibility: In terms of responsibility for complying with health and safety and other legal requirements, tenants would normally be expected to bear responsibility for the premises that they actually occupy, but landlords of multi-let buildings or estates may well retain responsibility in relation to common areas and/or shared service media. As such, the parties may have similar obligations in relation to different areas within a building, and co-ordinated measures might improve the outcomes.

For instance, landlords arranging for more regular cleaning of higher-risk areas such as shared stairwells or circulation areas within buildings or estates might be coupled with tenants arranging hand sanitiser stations by the entrances to their part of the building or estate.

Regulations: Another area for landlords and managing agents to consider is their ability to make regulations affecting management of a building or estate. Most leases will contain an obligation on tenants to follow such regulations made by the Landlord.

Such regulations can go further than legal requirements, and as a result could be more specifically tailored to the needs of a particular building or estate and its tenants; in addition, applying regulations across the building or estate can help ensure that all tenants are doing their bit to meet the wider needs of all users.

Landlords and managing agents should consider obtaining advice on their ability to make regulations, the contents of such regulations and the requirements for notifying tenants accordingly.

Tenants with concerns around other occupiers might want to approach landlords to try to help draft appropriate regulations.

Financial: A critical concern for landlords and tenants will be whether tenants have to continue paying full rent even if their ability to use the premises in the normal way is adversely affected by coronavirus, either by forced closures, deep cleaning, staff shortages or lack of footfall.

This could affect both the investment value of the property for the landlord and the viability of the tenant’s operations. Whilst most leases will state that the tenant is not to make any deductions or withhold any sums from the rent, there is usually a provision for payment of the rent to be suspended in the event of damage to the property by an insured risk.

Detailed consideration may be required as to whether (or to what extent) the rent suspension will apply, particularly given that issues surrounding coronavirus may not mean that there is physical damage to the fabric of a building in the same way as would be expected with other insured risks such as fire or flooding.

Landlords should ensure they understand the terms of their buildings’ insurance cover in this respect, while tenants should likewise be checking their business interruption cover.

Turnover rent arrangements: For leases featuring turnover rent arrangements, whereby the rent the tenant pays is calculated by reference to the turnover generated from the property, tenants might expect the rent to go down if takings suffer.

However, there could be complications if the premises are closed for trade altogether, as many leases state that where premises are closed the rent continues to accrue for the closure days based on average takings for days on which the premises were open during the relevant period.

Again, detailed consideration may be needed in terms of how the specific wording of turnover rent provisions will apply if premises are closed on the instructions of the authorities on public health grounds.

Service charges: Another key financial consideration will be the parties’ obligations in relation to the service charge.  Service charge provisions normally allow landlords to recover contributions from tenants towards the costs incurred in managing common areas or providing shared services. However, both parties will need to consider whether the cost of a specific measure is in fact covered by the wording of the lease.