Going Viral: A landlord and tenant guide to coronavirus in the UK

Rent Suspension

Tenants are naturally keen to understand whether their rent obligations continue during times of unprecedented economic downturn. Likewise, landlords want to know whether the income generated by their investments is secure and, if necessary, enforceable in the event of default. Many on both sides of the fence will have encountered the “Rent Suspension” clause in their lease (sometimes known as a “Rent Abatement” clause), and will be keen to understand its scope and availability.

Whilst the content of each lease will need to be checked, such clauses almost invariably cover only physical damage to the premises – and then only by specific insured risks, such as flood, fire, and storm damage. As a rule, they do not extend to the type of non-physical disruption or downturn in trade being caused by the coronavirus pandemic, with the result that rent obligations will not be formally suspended in the present circumstances.

That being said, the parties to a lease are free at any time to negotiate rent reductions or holidays – though these should be implemented only once fully agreed and formally documented (usually by way of a side letter). A tenant who unilaterally withholds payment faces the very real and present risk of having its lease forfeited – which can be done by the landlord without notice, simply by changing the locks and taking back possession of the premises.

Force Majeure                                                

“Force majeure” is one of few legal terms to have made its way into the common vernacular – which, unfortunately, means it is often cited by aggrieved parties without any real understanding of its meaning or effect.

Force majeure clauses (sometimes informally referred to as “Act of God” clauses) operate to suspend – or fully excuse – a contractual obligation on the occurrence of a particular event. They are, however, strictly contractual in nature; this means that if the contract does not contain a force majeure clause, the parties’ obligations remain entirely unaffected. There is no presumption in English law that an earthquake or a flash flood or any similar event will excuse a party from complying with its contractual duties – unless the contract is thereby fully frustrated (see further below).

Again, whilst each lease should be considered individually, modern commercial leases will rarely contain force majeure clauses for the simple reason that they deal with such events in other ways. Unlike many other types of contract (for the sale of goods, say, or the provision of services), leases are able to apportion risk through the use of building insurance and the rent suspension clauses discussed above.

If a lease is found to contain a force majeure clause, it should be reviewed very carefully to establish whether a pandemic such as coronavirus falls within its scope, and what the occurrence and impact of the virus permits of the affected party.

Frustration

In a legal context, frustration occurs where an unforeseen event so fundamentally affects a contract it would no longer be possible for the parties to perform their obligations – or where that event so radically alters the nature of those obligations that it is, effectively, no longer the same contract. Where it occurs, frustration automatically discharges the contract and the parties are excused from all future obligations

Again, whilst this definition seems to fit squarely with the severity of the coronavirus outbreak, it should be remembered that a lease is a very unique type of contract. Although it will contain a bundle of obligations as to repair, decoration, user, and so on, it creates at its heart an estate in land; the landlord allows the tenant to possess the premises, for a period, in return for a rent.

Conceptually, there is nothing about this arrangement that will be affected by the pandemic; the tenant remains entitled to possess the premises, and the landlord remains entitled to its rent. The particular use to which the tenant puts the premises is not a fundamental part of the contract; indeed, most leases will expressly exclude any warranty that the premises may be lawfully used for a particular purpose. That risk rests with the tenant – as will the risk of a decline in footfall and, in extreme cases, a complete inability to utilise the premises at all (such as in the case of a government-enforced lockdown).

For this reason, there has never been a reported case in the English courts of a lease being terminated by frustration. Of course, coronavirus presents an unprecedented set of circumstances and there will undoubtedly be attempts made by tenants in the coming months to invoke its principles.

Further advice

If you would like to discuss any of the issues covered in this article or if you require any advice with regard to your own particular circumstances, please email coronavirus@memerycrystal.com or get in touch with your Memery Crystal contact. Memery Crystal are closely monitoring developments in the real estate market and will supplement this note as further announcements are made and further measures of fiscal support are introduced.