Commercial Landlords and Tenants: – Future Proofing Through Flexibility

12th October 2020 by

By Ghazain Lehri, Solicitor – Healys Real Estate

headshot of Ghazain Lehri

Covid-19 has changed the face of commercial property in the United Kingdom (and across the globe) forever. Having dealt a seismic-blow to the status-quo, business owners, freeholders, landlords and tenants have had to rapidly mobilise to adjust to these unprecedented times. Those adjustments are still taking place and will continue to do so as the situation and the laws and regulations surrounding them develop.

Many are working tirelessly to limit the damage caused by Covid-19 and others are seeking to anticipate the long-term implications of the pandemic and are gearing up to react accordingly.  We have already seen deep-rooted City businesses announcing that working from home will be allowed permanently.  Businesses need to adapt or face the very real consequences of inaction and short-sightedness. Commercial property may appear to be in a state of fragility now but there are a few practical steps businesses can take to ensure that they are as future-proof as they can be in these uncertain times.

Landlords

Office spaces are seeing tremendous changes as a result of the government lockdown and an increase in remote-working. Expect this to be a long-term to a near-permanent change for many businesses which have now discovered that they do not strictly need to contend with the expenses and overheads of an office space. As a commercial landlord, flexibility is key in the current climate, and existing commercial leases may need to be varied to enable adjustments.

A complete overhaul of the Town and Country Planning (Use Classes) Order 1987, which governs the use of commercial properties, took effect from 1 September 2020. From this date, a new Class E  replaces all existing use classes which not only includes office spaces but also the following:

  • Shops
  • Financial and Professional Services
  • Cafes and restaurants
  • R&D or products and processes
  • Gymnasiums

Therefore, commercial landlords are advised to vary their leases to allow such businesses to operate from their premises.

On the other hand, too much flexibility in allowing tenants to change the use of businesses could serve to diminish the value of the freehold interest of a property. A variation of the lease should be strongly considered where a commercial landlord may wish to impose restrictions on the flexibility of commercial tenants to move between sub-classes within Class E.

Tenants

The use of the words ‘Force Majeure’ (Act of God) increased immeasurably when Covid-19 hit the United Kingdom as tenants desperately sought to limit their liability because of an event beyond their control. Unfortunately for tenants, very few leases contain such clauses; and despite government measures and the Corona Virus Act 2020 offering some respite from enforcement action, many have been left to contend with liability incurred for non-payment of rent. The uncertainty surrounding Covid-19 means that tenants should try and have such Force Majeure clauses inserted into any new commercial leases so that, in the unfortunate event of the Corona Virus or other such pandemic further afflicting the country, their liability is limited in the form of either a suspension of rent, the ability to invoke a break of the lease or similar measures.

Both Landlords and Tenants are strongly advised to seek legal advice in respect of their existing leases as well as any new leases that they are looking to enter into. At Healys, we are seeing a startling number of new leases that do not take into account the very real-world impacts of Covid-19. Changes in the law are taking place to reflect the rapidly changing commercial landscape and landlords and tenants must ensure that their leases reflect that.

For more information or to speak with Healys Commercial Property team, please click here.