The COVID-19 pandemic continues to disrupt almost every industry. Consequently, many commercial properties are currently left vacant as bars, restaurants and retail units are closed and most office workers have relocated to their own homes. But what should landlords and tenants consider before pulling down the shutters for an extended period of time?
Insurance
If you are responsible for insuring the property, you should check your insurance policy to see what it says about leaving the property vacant. Are there any specific obligations that the landlord or tenant must fulfil to avoid invalidating the policy?
Many commercial building insurance policies stop offering full cover once the property has been left unoccupied for 30 days. It has however been reported that some insurers have extended this period and/or relaxed some of the requirements in light of the current circumstances, so we would recommend contacting your insurer or broker as soon as possible to discuss your options.
In most landlord/tenant situations, it will be the landlord who insures the building and who will therefore need to liaise with insurers. However, both parties would be well advised to check the insurance provisions in the lease. These often set out what the tenant must do if it proposes to leave the property empty, and contain obligations on both landlord and tenant to notify the other of anything which might affect the insurance. Tenants may also be contractually obliged to cover any increased insurance premium.
Other lease obligations
Both landlords and tenants should check their leases for anything which may be relevant to the current situation. In particular, you may wish to look for the following:
Service charge – landlords of multi-let properties should check any obligation to provide services to the property. Is this an absolute obligation? What happens if the property is empty? In what circumstances can you stop providing all or any of the services?
Repair & decoration – Is there any risk of the property falling into disrepair while unoccupied, thereby putting the tenant in breach of its repairing obligations? Is there any specific programme of works or decoration which the tenant is supposed to carry out at a particular time, and which will now be delayed?
Keep open clause – shopping centre and retail leases in particular sometimes place a positive obligation on the tenant to stay open and trading during certain agreed opening hours. Tenants should check to see whether they will be in breach of these provisions, and whether there are any carve-outs allowing them to close in certain circumstances (for example where it would be unlawful to trade). Landlords, on the other hand, should be aware that these clauses are notoriously difficult (although not impossible) to enforce.
Payment obligations – tenant obligations to pay the rent, and other sums due under the lease, such as service charge and insurance premiums, will be unaffected by the tenant moving out, and the landlord remains contractually entitled to demand these sums (albeit that enforcement may be more difficult for the reasons noted below). Landlords are under no obligation to entertain requests for a rent “holiday” or deferral, and this will be a matter for negotiation between the parties. The courts now have powers to hear winding up petitions remotely and so this might enable landlords to recover sums due as the means of enforcing payment obligations are currently limited, with a moratorium on forfeiture for non-payment of rent due under the lease until the end of June.
Securing the property
It goes without saying that you should secure your property as effectively as possible before vacating, using any alarms and locking devices that are available. Any method of securing the property must also meet the requirements of both the building insurance policy and the lease. Tenants should make sure that the landlord has details of keyholders, access codes, alarms etc. in case of emergency. Again, the lease or any occupier’s handbook is likely to set out what is required in this regard. Who meets the cost of any additional security will also need to be addressed.
Notices
Many contracts require formal notices to be served at a specified address. There are also statutory provisions allowing certain documents to be served on a company at its registered office. If you are vacating your registered office and/or usual postal address, you should consider what steps you can take to make sure that any legal notices still reach you, to avoid missing deadlines and/or incurring any liability for failing to respond. This is particularly important in circumstances where notices are deemed to be served by being sent to a certain address, irrespective of whether or not anyone is there to receive it. Anyone serving a notice (for example a tenant serving a break notice on its landlord) will also need to keep these provisions in mind and check carefully what is required.
Conclusion
We hope the disruption caused by COVID-19 will be short-term and commercial premises will be able to re-open their doors soon. In the meantime, both landlords and tenants will want to ensure their properties and legal rights are best protected.