Commercial Property and CoronaVirus – FAQs
Published on April 28, 2020
The impact of the CoronaVirus raises a number of questions for Landlords who own Commercial properties, and Tenants who lease those properties. The spread of the virus has left those who are affected, uncertain and unclear of the security of their Leases.
This blog answers seven frequently answered questions asked about the effect of CoronaVirus on purchasing or selling Commercial Property, and gives you answers to the questions you are desperately wanting to find out. It also discusses important Landlord and Tenant queries.
How are surveys and valuations taking place during social distancing?
Despite the hardship of social distancing measures, there are alternative ways to put your commercial property on the market. Valuations are in fact being carried out virtually, although this is not currently accepted by all lenders. Lenders have had to accept to some degree that due to social distancing, you cannot open your doors to anyone. For this reason, physical viewings are not possible.
Can I claim a reduction in rent if I am unable to use my premises?
Rent is only suspended where there has been damage to or destruction of a premises by an insured risk or, depending on the wording of the lease, an uninsured risk. Therefore in most cases you will not be able to claim a reduction in rent as the effect of CoronaVirus does not cause damage or destruction to the property, the effect is merely that you are unable to use the premises.
In order to see whether your rent can be reduced, the actual wording of the Rent Suspension clause would need to be reviewed. You will be able to see whether the usual wording has been varied in a way that would allow the Tenant to argue that the rent should be suspended. In order to see if you are entitled to a rent reduction please contact one of our Solicitors today to review your Lease.
Can I argue that the Lease is frustrated if I cannot use the premises?
It is unlikely that you could argue that your Lease is frustrated as the threshold test for frustration is very high. To argue frustration, you have to show that there is some form of intervening illegality or failure of common purpose. This must render performance of the Lease impossible or so radically different from the parties’ expectations that frustration is justified.
Last year the European Medicines Agency tried to argue that Brexit would frustrate its Lease as it was forced to relocate to another member state, however the Court did not agree. It is therefore unlikely that you could argue the Lease has been frustrated, however this does not stop parties from trying to argue it if Court proceedings are issued.
Will Business Interruption policies cover any losses I incur?
Again, like most of the answers to these questions, this will depend on the terms of your policy. You would have to have opted-in to cover for loss arising from infectious diseases. In addition, most policies require the infectious disease to have become a notifiable disease before the policy will cover losses. As of 18:15 on 5 March 2020, CoronaVirus became a notifiable disease.
To check if you are eligible to recover any losses incurred ensure to ask one of our Solicitors to review your Lease.
What happens if the Government forces the closure of a commercial property?
A closure would prevent both parties from meeting their obligations under the terms of a Lease. Landlords would be unable to open properties in order to permit trade. The tenants would not be permitted to trade in any event. Therefore, both parties risk finding themselves in breach of their covenants.
However, it is unlikely that this breach will cause loss to the other party. This is because, even if the landlord kept a property open, the tenants would not be permitted to trade. The landlord wouldn’t be able to argue that the tenant’s inability to trade had caused it loss, because the tenant would not have access to the premises.
Of course, if there is a prolonged closure of a property, tenants may ask a Solicitor to look closely at the terms of their leases to see if they could operate break rights that have been granted to them.
Can I choose to close a property as landlord?
The answer to this question depends entirely on your situation. It is unlikely that a landlord who has let the whole of a building to a tenant would be in a position to close the building voluntarily. However, a landlord who has let parts of a property and retains control of the common areas, including the communal access, may need to take action resulting from its obligations as the employer of staff in the property and its health and safety obligations to tenants of and visitors to the property.
Can I electronically sign a Lease or accompanying document?
Currently the law states that signatures on documents such as Leases should be physically written. However, it is expected that there will be an increase in the use of electronic signatures for the execution of contracts. Solicitors and practitioners will need to consider alternatives to having a physical signature whilst most Solicitors offices are closed, and they are not to meet with any Client. Although no statute has been revised it is likely that further legislation concerning the use of electronic signatures may be forthcoming.
Whatever situation you have found yourself in, ensure you speak to a Solicitor to find out what your rights are and how you can ensure you are not in breach of your Lease. Our office doors may be shut, however we are still open for business and available to discuss your legal needs. Call us on 0116 2470022 or email our Commercial Property Department at firstname.lastname@example.org