Reed Smith Client Alerts

As the UK Government's response to COVID-19 continues to evolve, we are receiving an increasing number of enquiries from clients as to the effect on their lease arrangements, most commonly regarding whether tenants can walk away from their leases or claim a rent suspension if premises are closed and whether increased costs of cleaning can be passed down to tenants through service charges.

Terminating leases

The first place to look is the lease itself. Unless there is a tenant break clause, the only other contractual provision that would be of real assistance in this scenario would be a force majeure clause. This would allow the parties to bring the lease to an end if such circumstances prevailed; however, the vast majority of leases do not contain such a clause, and there is no common law right for tenants to terminate due to force majeure.

Tenants will therefore have to look further into the common law and the doctrine of frustration to see if that will provide a way out. Frustration, however, is a rare beast and the courts are very much against extending the very narrow principle, as was highlighted in last year's Brexit case involving the European Medicines Agency.

Simply put, a contract will be frustrated if an event occurs which makes it impossible for an obligation to be performed or where performance of the obligation would be radically different from what the parties envisaged. Is the outbreak of a disease such an event? Given that public health issues are not so far out of our contemplation, it is highly unlikely that COVID-19 would satisfy the test, particularly where the ability to occupy premises would be suspended for a relatively short time, rather than terminated entirely.

Commercial tenants will also generally be required to comply with all statutory requirements under their leases. This will include directions issued by Public Health England or the Health and Safety Executive. Thus, if premises are directed to close, tenants will be required to vacate in any event.