The coronavirus pandemic has had a massive impact on all sectors of the economy, with retailers, hospitality and leisure businesses arguably feeling the most strain. As a result, some commercial tenants are currently looking to their landlords to help them in mitigating the impact of enforced closure.
Retail tenants are reportedly pushing for so-called ‘pandemic clauses’ to be inserted into their leases upon renewal, to help lessen the financial pressure on their business during future national or regional lockdowns.
Hang on – what’s a ‘pandemic clause’?
According to an article in The Times, Amazon, Sports Direct, Schuh and VF Corporation (which owns the Timberland and North Face brands) are rumoured to be among those asking for the clause to be included in new leases.
While the exact terms of the clause are likely to be decided on an individual basis between landlords and tenants, they typically provide for a 50% rent reduction during periods of enforced closure (for example in the event of a local or national lockdown). Shopping centre owners Hammerson and British Land are among landlords already said to have accepted lease renewals on these terms.
Why would landlords accept these clauses?
In its code of practice for the property sector, published in June in a bid to encourage commercial tenants and landlords to work together in these difficult times, the government stresses the need for both parties to do everything they reasonably can to enable businesses to continue operating.
It could be argued, therefore, that accepting a ‘pandemic clause’ in new or renewed leases is firmly within the spirit of that guidance. It is also arguably in landlords’ best interests to accept temporary rent reductions on the proviso they will be repaid when the tenant is in a position to do so, rather than losing their tenant altogether to business insolvency.
For more information on the above or if you would like to speak to a member of the team, contact us at Commercialpropertydepartment@woodfines.co.uk