PropList Blog
This briefing note is only intended as a general statement of the law and no action should be taken in reliance on it without specific legal advice.
Updated 17 March 2020
1) All the usual remedies for non-payment of rent are presently available to landlords. This includes using bailiffs to seize goods, statutory demands and winding up petitions, forfeiture, debt actions, claims against guarantors and calling on rent deposits. The type of action which is appropriate will vary from tenant to tenant and should be carefully considered based on legal advice to identify the best course of action in light of specific objectives and the risk profile of the proposed action. Certain types of enforcement action have been suspended in the US and there is the possibility that the UK government may follow suit in due course. We anticipate that the Courts will be inclined to show leniency when exercising discretion, for example, in relation to the terms on which relief from forfeiture is granted or where a possession order is to be suspended or where injunctive relief is sought.
2) Landlords and tenants should review their insurance policies to identify potential cover for business interruption or loss of rent that might be responsive to the COVID-19 outbreak. The analysis of insurance coverage is policy specific and will need to be considered on a case by case basis.
3) Leases may define Insured Risk in such a way that makes it arguable that rent cesser provisions will come into effect where premises become unfit for occupation. This is usually (but not always) linked to physical damage to the premises or its means of access and will be dependent on whether a landlord's insurance is responsive to the relevant risk. The specific drafting of rent cesser provisions will need to be considered and tenants should consider asking their landlords for details of their insurance cover (many leases allow for this) so this can be reviewed.
4) Absent specifically negotiated provisions, UK law is presently unlikely to recognise the COVID-19 outbreak as a frustration event. This advice may change depending on the duration of the current crisis and any relevant government legislation that may be enacted. The key points to note are:
A) The threshold for invoking the doctrine of frustration is very high and the burden of proof is on the party seeking to rely on the doctrine.
B) UK courts have held that, in principle, a lease could be frustrated in very rare circumstances. There are currently no reported cases where a lease has actually been frustrated. The most recent (unsuccessful) case on frustration was the case between Canary Wharf and the European Medicines Agency in which the EMA argued that Brexit would frustrate its lease on the grounds of supervening illegality or frustration of common purpose because, as an EU institution it was unable to operate outside the EU. The Court held that there was no illegality or change in UK law that would have prevented EMA from performing its lease obligations including occupying the premises but the Court took account of fact that the lease was assignable and premises remained capable of occupation at all times. We cannot rule out the possibility that if the UK enacts specific legislation which makes the use or occupation of certain types of premises unlawful for a prolonged period this might be sufficient to frustrate a lease due to supervening illegality.
C) A change of circumstances that simply makes performance of the contract less convenient or economically viable is very unlikely to amount to a frustration event.
5) Where frustration is not available despite premises being deemed unfit for use or occupation for a prolonged period due to the enactment of legislation it is possible that the Courts might alter their approach to the interpretation of leases and obligations to pay rent so as to balance the economic impact of a tenant's inability to use premises for the purpose for which they were demised.
6) Leases should be reviewed for force majeure provisions. These are non-standard in modern UK leases and will not be implied. Such clauses where they do exist mostly relieve landlords of their obligations to provide services where it is not possible to do so. Force majeure provisions are more common in agreements for lease and these should be identified early and advice sought on the steps to be taken to preserve termination rights.
7) Landlords should work with their cleaning service providers to ensure that cleaning is being carried out in accordance with government guidelines including, where possible, enhancing cleaning in common parts specifically focusing on door handles, hand rails and lift call buttons. Hand sanitisers should be made available in manned reception areas. Steps should be taken to ensure that stock levels of consumable products are maintained insofar as is possible.
8) Tenants should be provided with regular updates on steps being taken by their landlord and referred to guidance and updates provided by the UK government and the NHS. Tenants should be asked to comply with such guidance with regard to self-isolation and social distancing.
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