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The pandemic’s effects on commercial lease renewals

8th July 2021

The pandemic’s effects on commercial lease renewals

Kate Elwell, Associate in our Dispute Resolution and Litigation team, ponders whether pandemic rent suspension clauses are set to becoming the norm.

Like every other aspect of commercial life, Covid-19 has had an impact on the way courts approach non-contested lease renewals. We are now starting to see the effect on lease terms for future leases.

Very often the terms of commercial leases are negotiated and settled by the parties and rarely is the court asked to step in and decide what the new terms are. However, over the last year, the issue of whether the new lease should include a contractual pandemic rent suspension clause has been a hotly contested issue. 

For obvious reasons, tenants are keen to ensure that they do not have to pay rent in the event of future lockdowns - and landlords are, understandably, resistant to any clauses that interrupt their income.

This point has been recently explored in a case involving WHSmith. Clearly for the business, with so many shops, they are keen to protect their revenue streams if ever a pandemic were to strike again. 

This particular case revolved around the business’ retail premises in London’s Westfield Shopping Centre, which was up for renewal. During the November 2020 lockdown, non-essential retail units were forced to close but this WHSmith remained open as it contained a Post Office, which was classed as an essential service. Despite being open, sales plummeted by more than 90%.

At the lease renewal trial hearing, a pandemic rent suspension clause was agreed but the wrangle came over what circumstances would trigger the suspension. The landlord believed it should only be triggered by a compulsory order to cease trading, whereas the tenant argued it should be when other non-essential retailers were told to close, given its huge drop in sales as a result.

In this case, the court found in favour of the tenant, agreeing that the rent suspension clause should be triggered by the closure of other non-essential retailers.

The question now is whether every tenant will expect a rent suspension clause and whether this will now be the new normal? Will landlords simply price such provisions into rents going forward?

Our experienced team are here to help businesses negotiate the ever-changing landscape. Get in touch for assistance.

 

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