The Impact Of Covid 19 On Commercial Leases & Renewals
We all know that the impact of COVID-19 on the commercial letting market has been profound. As a result, tenants are now looking for greater flexibility going forward and expect landlords to share the risk and financial hit of potential future lockdowns.
It is interesting therefore, to consider what approach the courts are taking when determining commercial lease renewal terms under the Landlord and Tenant Act 1954 and how they may be applied in light of the ongoing pandemic.
The case of W H Smith Retail Holdings Limited v. Commerz Real Investmentgesellschaft mbH (2021) related to a large W H Smith branch operating at the Westfield Centre, Shepherds Bush.
Although the original commercial lease was for a term of ten years, the parties agreed on a renewal lease of just five years. The judge noted that currently no retail tenant wants to enter into a long-term commitment. In addition, the judge applied a 20% reduction in the rent due to the pandemic. The parties agreed that a pandemic rent reduction clause should be included in the new commercial lease to avoid the landlord facing a further 10% rent reduction, which would have reflected the onerous liability of paying full rent during a lockdown. The parties agreed that the pandemic rent reduction clause should be based on the tenant paying 50% of the rent and the whole of the service charge during any further lockdowns and the judge noted that such clauses are something the market is now beginning to price in.
We are starting to see the first cases that are considering the impact of the pandemic on rents and commercial lease clauses and the market is closely watching how the courts approach the difficulties faced by tenants brought by the pandemic. The acceptance by the landlord of the pandemic related rent suspension clause mentioned above shows how quickly the market is adapting and moving forwards. It may be difficult for landlords to resist the inclusion of such clauses, especially in relation to retail commercial leases which are hit hard by lockdowns.
If you need the advice of a commercial property solicitor regarding a lease renewal, or to agree to an initial commercial lease, then contact me directly via david.stone@GAsolicitors.com. Alternatively, call 01752 203500.