Keeping staff and customers safe
In this new world, non-essential retailers, pubs and restaurants will have been rightly focussed upon keeping their staff and their customers safe as a priority.
Their next step should be to consider if their actions have left them vulnerable to any landlord action connected to their lease. Most occupiers of shopping centres or retail parks will have a ‘keep open’ clause within their lease, so that the investor landlord can ensure that there are sufficient units open and trading to ensure a high volume of footfall across their portfolio.
Before Covid-19, if a retailer closed their doors unexpectedly or started to operate reduced hours, it would 1) be a warning sign to the landlord that the tenant may have cash flow problems and 2) prompt a review of the situation so that the landlord could assess whether it wanted to forfeit the lease.
The action that the landlord might then take as a consequence of the breach of the lease could range from drawing down the rent deposit, calling upon the guarantor, injunctive action to compel the tenant to continue to trade, to forfeiture.
In the current climate there are additional considerations. Firstly, has the tenant chosen to close or is it compelled to do so as a consequence of government advice? If the latter, it is likely to have a defence relying upon the ‘force majeure’ clause.
There will, however, be a number of retailers who do not yet fall squarely within any of the government advice or instructions. Whilst social distancing is being encouraged on a daily basis there is a still an amount of discretion being exercised by retailers to determine if they are ‘essential’ and if they can safely operate with social distancing.
Even with the current lock down, there are still ambiguities i.e. dry cleaners fall into the ‘essential’ category, but would you open your shop if everything around you was closed? In those circumstances, we would expect a landlord to be sympathetic to the wider climate and the retailer’s choice to close.
If you are a tenant, notify your landlord of any changes and make it clear that there is a direct link with the Covid-19 situation, so that you do not inadvertently compromise any future defence for your actions if your landlord chooses to take a robust stance.
It is important to document changes with landlords. An exchange of letters or emails will not formally vary a lease which is completed as a deed, but it will act as helpful knowledge of the situation on the ground if required.