Over the past few months, many tenants have asked if we are able to help negotiate Covid-19 clauses into their office leases.
During the lockdown, you’ll be only too aware that office tenants have had to continue paying rent for offices they have been unable to use! This seems unfair, placing a heavy burden on businesses already suffering the economic consequences of Covid 19.
Protecting your business in an uncertain future
Alas, there is no standard Covid clause to protect office tenants. However, is it possible to adapt an office lease to protect businesses from paying rent and service charge in the event of a future lockdown? As restrictions are re-imposed and we are once again instructed to work from home if possible, this becomes very relevant again.
During lockdown, some office tenants with pre-Covid leases have been able to negotiate savings and some landlords have been pretty helpful. The majority have been less so. What we have found is that, unless tenants could demonstrate they were about to go pop financially, landlords would provide nothing more than a few carefully measured sympathetic words.
During lockdown, unless office tenants could demonstrate they were about to go pop financially, landlords would provide nothing more than a few carefully measured sympathetic words.
Nasty commercial landlords – an unfair caricature?
During the coronavirus lockdown, the press demonised “nasty commercial landlords”, but I think this was largely designed to be headline grabbing. My colleague Michael Fraser has written recently about the need to re-balance the landlord/tenant relationship. I agree with his conclusions. That being said, landlords are human beings like the rest of us. They perform the vital economic role of providing business space for companies unwilling to buy land and develop offices themselves!
Naturally, in providing office buildings, landlords expose themselves to cost and risk. Critically, their ability to meet these costs is predicated on receiving rent. It’s worth pointing out that commercial landlords (unlike providers of residential accommodation) have found it much harder to obtain relief from their lenders. More widely, unpaid commercial rents present risks to the economy as a whole.
Is it possible to adapt an office lease to protect businesses from paying rent and service charge in the event of future lockdown?
Sharing the pain – a compromise Covid-19 clause
In our experience it has been extremely difficult to re-negotiate relief for existing leases. On the other hand, it is far more realistic (albeit challenging) to negotiate Covid-19 clauses into new, as yet unsigned office leases. Crucially, we have suggested to landlords that tenants can no longer enter into new leases without at least anticipating the possibility of a future lockdown. Nevertheless, landlords still much prefer the certainty of providing a few additional months rent free to conceding open-ended future lockdown rent relief.
Fundamentally, office tenants can no longer enter into new leases without at least anticipating the possibility of a future lockdown.
Interestingly, some more enlightened landlords have allegedly agreed sensible Covid-19 clauses. These are apparently generally based on the principle of “sharing the pain”, rather than agreeing to nil rent and service charge during a lockdown. Instead, both parties settle on compromise positions where rent and service charge is significantly reduced whilst the office space is unusable.
In conclusion, up to this point it has been possible (but challenging) to negotiate Covid-19 clauses into new office leases. As we enter into lockdown 2.0, I predict Covid clauses will become more common.
If you need our help in this complicated area, please get in touch.