Property pandemic - The impact of coronavirus (COVID-19) on landlords and tenants

Property Disputes analysis: discussion on the potential impact of coronavirus (COVID-19) on landlords and tenants.

Which arguments might a tenant raise in respect of breaches of lease, such as failure to pay rent or comply with a keep open clause, resulting from coronavirus?

With regard to non-payment of rent, the government has announced that landlords in England and Wales will be prevented from terminating certain business tenancies by forfeiture for non-payment of rent from 25 March 2020 until 30 June 2020. The Coronavirus Act 2020 (CA 2020) containing the restrictions came into force on 25 March 2020. There are powers to extend this date if necessary. Business Tenancies protected under the Landlord and Tenant Act 1954 (LTA 1954) are affected and the Explanatory Notes accompanying CA 2020 in the House of Lords confirm that CA 2020 also applies to tenancies contracted out of the protection of LTA 1954. While CA 2020 does not affect a landlord’s ability to take other enforcement action in respect of non-payment of rent (such as service of a statutory demand, CRAR or court proceedings), landlords and tenants will no doubt be making contact with one another and entering into discussions in order to agree a practical way forward.

With regard to failure to comply with a keep open clause, it is likely that the tenant will also have an obligation in its lease to comply with all statutory and legal requirements. A business operating in contravention of the Health Protection (Coronavirus, Business Closures) Regulations 2020 (SI 2020/327) will be committing an offence and could be subject to prohibition notices and potentially unlimited fines. Therefore, a tenant’s obligation to comply with statute is likely to override any keep open clause. 

Does the tenant have any basis on which to terminate their lease on the basis of coronavirus?

One argument that might be put forward by a tenant is that the coronavirus pandemic has frustrated the lease so that the tenant cannot perform its obligations under it. The courts have confirmed that the doctrine of frustration can in principle apply to leases although as yet no-one has successfully argued that a lease has been frustrated before the English Courts. For example, in Canary Wharf (BP4) T1 Limited & Others v European Medicines Agency [2019] EWHC 335 (Ch), the High Court held that Brexit did not frustrate a lease. A frustrating event must be an event that occurred after the lease was entered into. The event must be so fundamental that it goes to the root of the lease and renders further performance of the lease impossible, illegal or makes it radically different from that contemplated by the terms of the lease.

In the Canary Wharf case, the court placed much weight on the fact that the European Medicines Agency’s (EMA) lease catered for an involuntary departure by the EMA from the premises by virtue of the alienation provisions and the fact that there was nothing legally preventing the EMA from operating from the premises and complying with its obligations in the lease. On the basis of this decision, it seems that a court would be reluctant to come to the conclusion that a lease has been frustrated even in circumstances where the premises are likely to be closed temporarily due to the novel coronavirus pandemic. However, this is likely to depend on the nature of the tenancy agreement. There was a case in Hong Kong (Li Ching Wing v Xuan Yi Xiong [2003] HKDC 54 (not available on LexisLibrary), relating to the 2003 SARS outbreak, where a tenant tried to terminate his tenancy because the Department of Health issued an order isolating the premises for 10 days. The court held that a period of 10 days was relatively insignificant in the context of a two-year tenancy agreement and therefore the tenancy had not been frustrated. The current ‘lockdown’ will remain in place for an initial period of three weeks (subject to review after that period). Therefore, a three-week period in the context of a five or ten-year lease is unlikely to be considered a frustrating event. However, if for example someone has been granted a short-term agreement to have a food market stall for a period of a month then this may well qualify.

One other argument that might be sought to be made by a tenant is to say that coronavirus will fall within a force majeure clause. Whether coronavirus would constitute a force majeure event for a specific lease will depend on a number of factors. These factors will include—whether coronavirus has hindered performance of the lease or made it impossible, whether the outbreak was foreseeable at the time the lease was entered into as well as what the rest of the lease says. It will also be relevant to consider whether there were any reasonable steps the party seeking to rely on the clause could have taken to avoid the effects of the force majeure event and whether it complied with the requirements of the relevant clause. Generally, force majeure clauses are interpreted strictly by the courts and so coronavirus may be considered as an event which hinders performance of the terms of a lease rather than prevents it altogether. 

What are the landlord's health and safety responsibilities in the context of coronavirus?

There are a number of specific health & safety obligations on landlords relating to legionella risks and gas safety. However, dealing with coronavirus is different in that it is not linked directly to a building. The Health and Safety Executive’s website Public Health England (PHE) have guidance for employers and businesses generally, which is likely to be applicable to most landlords.

If there is a single let property with no services being provided by the landlord, then it is unlikely that the landlord has any legal obligations to the tenant or other occupiers of the building. The key test is how much control a landlord has over a situation. It is far more likely to have additional responsibilities in circumstances where it is providing services beyond just providing rented property. For instance, if a landlord is providing services to a number of tenants, such as cleaning or maintenance of parts of premises under its control, it will have responsibilities to employees and contractors and there may be obligations to residents depending on the circumstances. It is recommended that landlords also check with their insurance broker and/or insurer regarding proposed steps.

There is some debate as to whether there is a general duty of care owed by landlords to occupiers that goes beyond any lease/contractual or statutory obligations. In practice, in most circumstances this may be academic, as looking after the wellbeing of individuals (particularly vulnerable ones) is being dealt with by official guidance to self-isolate for 12 weeks and are unlikely to involve the landlord. Landlords can try to help to stop the spread of the virus by erecting notices prepared by the PHE and increasing the frequency and intensity of the cleaning and maintenance of the common parts, although there is no obligation to do so. 

Which party is responsible for organising and paying for deep clean costs?

There is unlikely to be a specific obligation on a landlord to arrange and pay for deep clean costs of the common parts of buildings. There may well be a ’sweeper’ provision in the lease, which provides that the landlord is able to provide such facilities or services for the benefit of the building as it may in its discretion determine. This may entitle the landlord to carry out deep clean costs of the common parts, if necessary, and to reclaim those costs through the service charges, but much will depend on the wording of the clause itself. 

What are the implications in respect of service of landlord and tenant notices, for example in the event of restriction of movement and/or Royal Mail delays/reduced services?

Every situation will depend on the specific provisions contained within the lease. The relevant provisions should therefore be reviewed carefully to check whether a service provision is mandatory or merely discretionary.

There may also be statutory provisions relating to specific types of notices. Some of these relate to the last known place of business of the landlord or the tenant. It is important for landlords and tenants to consider whether they need to make alternative arrangements regarding the receipt of notices in circumstances where most businesses are shut, and most office workers are working from home. The chances of a notice coming to someone’s attention if it is served at a business address is at the present time is obviously much less likely than usual.

Given that parties to a lease have an ongoing relationship parties should engage with each early to see if a practical way forward can be agreed if it is not possible to serve a hard copy notice by post. For example, the landlord and tenant could agree that they are prepared to accept service of notices for a specific period of time by email. The availability of this option, will however, depend on the wording of the lease itself. While most leases are unlikely to provide that service by email is good service, these are unprecedented times and it may be in the interest of both parties to agree that for the time being at least email service is good service.

It is recommended that landlords and tenants start thinking about the service of any forthcoming notices at the earliest opportunity to enable there to be sufficient time to arrange for service (particularly if it is necessary to serve by post and there are issues with Royal Mail delivery services).

This article was written by Senior Associate Georgina Muskett and Knowledge Development Lawyer Laura Bushaway at Charles Russell Speechlys who were interviewed by Paralegal Tom Inchley at Lexis Nexis PSL and was first published in Lexis Nexis PSL on 27 March 2020.