COVID-19 Conditionality in Property Contracts

The COVID-19 pandemic has caused unprecedented challenges in the UK real estate market affecting both the residential and commercial sectors. Buyers have faced hurdles with property viewings and commissioning surveys, valuations and searches. Sourcing finance has also posed problems, many traditional lenders had frozen new loans or restricted lending to low LTV products, although this is now loosening.

Retail lettings have been impacted by trading restrictions on “non-essential” shops and office moves have been pushed back pending a decision on when staff can return to work at the office.

Despite all this there is continued appetite from buyers/sellers and landlords/tenants to progress deals to take advantage of attractive rents and keen valuations, all in the expectation the lockdown will ease in the near future. To give buyers and tenants the comfort they need, we have negotiated a number of bespoke solutions for COVID-19 conditionality in property contracts summarised below.

Commercial Lettings

• Re-opening for trade – Of particular relevance for retail, hospitality and leisure tenants. We have negotiated agreements for lease with completion conditional on the easing of COVID-19 restrictions to enable the re-opening of trade for the tenant’s permitted use with no limitation on customer numbers, opening hours, staffing or supplies.
• Commencement of fit out – Another potential trigger for completion of a lease could be the ability for the tenant’s fit out contractors to be able to start work on site. Perhaps more attractive to landlords and arguably many fit out contractors can continue to work under the Government restrictions as they currently stand.
• Rent free periods – With landlords keen not to be stuck with vacant properties, tenants have been able to secure more attractive rents and rent frees. As well as offering extended initial rent frees, we have also negotiated additional conditional rent free periods should successive “lockdowns” be implemented after the current restrictions are eased. Again this can give added future proofing for tenants in uncertain times.

Buying/Selling

• Surveys, valuations and searches – With parties keen to lock deals in but often unable to commission surveys, valuations or searches (or with considerable delay), we have exchanged sale contracts with completion conditional on satisfactory surveys, valuations and search results. This gives the parties a degree of certainty and protection for the buyer but detailed consideration needs to be given to what would constitute “satisfactory”.

• Mortgages – Another trigger for completion of a sale could be the buyer sourcing an acceptable mortgage. Seller’ should be wary of this and ensure they aren’t simply granting the buyer an option over the property. There would need to be a fairly robust obligation on the buyer to pursue a mortgage offer in a timely fashion and sufficient clarity would be needed as to what would be acceptable to the buyer.

• No search/search delay insurance – Although not new and not something to be covered in the sale contract, there is an option for a buyer to place indemnity insurance to cover the risk of no property searches being undertaken or results not being received prior to exchange. Should any materially adverse issues then be discovered at a later date the insurance would cover financial losses suffered by the buyer.

We would be glad to discuss these and any other bespoke options with you to help facilitate your transaction.