I have a ‘keep open’ obligation in my lease but in the lockdown I can’t open. Am I in breach of my lease?
So-called ‘keep open’ clauses can often be found in leases of retail premises. They are a positive obligation to keep open and trade, usually within normal business hours.
If you have closed because your premises have been required to close to the public under the Health Protection (Coronavirus, Restrictions) Regulations, then that may be a defence to any action to enforce the keep open covenant. There haven’t been any cases on the point yet, but it would be open to you to argue that the statute in effect trumps the keep open clause. It would be unlawful for you to comply with your keep open clause, and you could argue that this has released you from having to comply with it.
Whether this argument may work will depend on the precise wording of your keep open clause and the precise nature of your business. For instance, some businesses which haven’t been allowed to remain open to the public can still lawfully continue to operate by fulfilling orders that have been taken over the internet. If they instead chose of their own volition to completely close, then the defence won’t help. Some shops have decided themselves not to open when actually they have not been compelled to do so by statute, and again the defence would not help those businesses.
Hopefully that isn’t the end of the world though, as even in normal (pre-Covid) times landlords find it very hard to effectively enforce keep open clauses. The Courts in England and Wales won’t order specific performance or an injunction to force a business to remain open and trade. The House of Lords said it wasn’t in the public interest to force somebody to carry on a business (perhaps at a loss). So even if you have a lease with one of these clauses, the landlord will not be able to obtain an injunction to force you to keep open. (Note the position is different in Scotland, however).
The landlord can obtain damages if you are in breach. It might be that the landlord hasn’t really suffered any loss, given that you’re still going to be paying the rent. But there may be certain circumstances in which the landlord is able to show that it has incurred damages, for example if you are the anchor tenant in a shopping centre and the value of the property investment has gone down as a result of your failure to trade, or it may have reduced the landlord’s turnover rent.
The other remedy the landlord could seek is forfeiting your lease because you are in breach of covenant. Note that although the Coronavirus Act 2020 has imposed a moratorium on forfeiture for non-payment of rent, this doesn’t apply to other breaches of leases including breach of keep open clauses.
In reality, forfeiture might be the last thing the landlord wants to do because it doesn’t want an empty unit and the business rates liability of the empty premises. But if it did want to take the premises back by way of forfeiture, it would have to follow the statutory procedure by first serving notice. To be valid the notice would need to give you the chance to remedy the breach. It wouldn’t be possible for the landlord to exercise its right of re-entry until you had failed to remedy the breach within a reasonable time or the period stated in the notice and paid reasonable compensation to the landlord. You would also be able to apply for relief from forfeiture.
In a recent case, SHB Realisations Limited v Cribbs Mall Nominee 1 Limited (2019), it was confirmed that even a long lease for which a large premium had originally been paid could be forfeited for breach of a keep open clause. The Court decided that given that the loss to the tenant would be so great they should be given a reasonable time to seek to assign the 125 year lease of an ex-BHS store before the forfeiture could take effect. The Court decided that three months was long enough and the marketing could not be allowed to drag on as a tactic to indefinitely avoid forfeiture. The tenant didn’t find an assignee, unsurprisingly given the market for a former department store.
This case was very unusual though, and generally forfeiture would be hard to obtain and relief would be available anyway. At the present time actions to enforce a right of re-entry by possession proceedings are subject to a stay (CPR Practice Direction 55C) as well. In practice, landlords may be struggling for a remedy for breach of keep open clauses in the present circumstances.