Considerations for Landlords and Tenants: Getting back to work following lockdown
As the lockdown restrictions of the past two months begin to ease many will be wondering when will be able to get back to work and what will that look like.
Whilst the exact nature and shape of the return will be led by Government guidance, we are able to put our minds to what this return may look like for the existing relationships between landlords and tenants and what they may need to consider in preparation for this return.
Terms of the lease
If lease negotiations are underway for a new lease then tenants will likely be looking for shorter leases and greater flexibility and may look to change heads of terms to include these requirements.
With the increase in flexible working tenants of existing leases may well be considering their existing space and whether a relocation is on the cards. However, careful consideration is needed here as although less people may be in the office day to day the space required for those people is going to increase to maintain social distancing. For instance, when offices reopen there may need to be one-way systems, desks may have to be moved further apart, and small meeting rooms and breakout areas turned into temporary individual offices.
With these changes in mind landlords and tenants should be reviewing the key dates in their leases and opening early discussions with each other, particularly if a lease is due to be renewed or a break date is nearing.
We have seen tenants seeking to add a ‘Covid’ clause to their lease. These clauses state that the rent will not be payable, either in full or in part, in the event of a future lockdown. Landlords will, of course, want to avoid this as the risk would fall to them.
However, for a landlord this must be balanced against the desire to let the property and as such a landlord will need to make a commercial decision as to whether they are prepared to agree to such a provision, should the issue arise. We suspect, such clauses will begin to become more prevalent (especially if a further lockdowns are imposed) and a sharing of the risk between landlords and tenants on this point may become common.
We also expect to see further “Covid” variations which could include changes to the payment arrangements to substitute fixed rents for turnover rents or vice versa.
Fit out and development
If you entered into a lease pre-lockdown then it may be that this lease and associated licence for alterations contained timeframes for the completion of works and a rent free period in the lease linked to the duration and/or cost of these works. If those works were halted during the lockdown then any associated rent free period would have been running down without the tenant being able to complete the works. Parties should therefore be looking to negotiate an extension of time for any works and tenants could begin to seek an increase in their rent-free periods.
Physical alterations and change of use
If physical alterations are required to a property to meet the Government guidelines on safe working then a tenant must check its lease before starting any work. Works required to comply with statute may still need landlord’s consent and the provisions of the lease will need to be reviewed in the context of the work you are proposing to do.
As well as physical alterations, tenants may consider changing the use of their property of parts of their property. For example to utilise outdoor space as seating areas or using restaurants to provide take away food. There may be statutory restrictions, such as planning consents which will be needed to do this, as well as provisions in the lease which need to be complied with.
We have a free of charge document review service available from our website and we will be happy to review your lease on these points to confirm your obligations.
Rent holidays and concessions
During the lockdown period, many landlords and tenants will have agreed rent concessions or holidays. As tenants return to the premises, they may be facing a return to full rental payments together with a call for the balance of the rent they have not been paying. Landlords and tenants should talk with each other early and agree payment arrangements that, where possible, will suit the cash flow requirements of each party. Any such agreement should be documented properly in writing to ensure that the chance of any future dispute on this is limited.
The above is a summary of some of the issues which landlords and tenants may be facing in the coming weeks. If you require further advice regarding the effect of Covid-19 on your property transaction, or any other Real Estate matter, please contact Daniel York in our Real Estate department.
This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.
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