Rent suspension clauses and Covid-19

During the pandemic, the UK government imposed restrictions which resulted in some tenants being unable to use their property for the use permitted under the lease. Whilst many landlords were reasonable in re-negotiating the payment of rent during this time, others sent demands to tenants for full rent, as per terms of the lease.

A recent case, WH Smith Retail Holdings Limited v Commerz Real Investmentgetsellshaft MBH, highlighted the difficulties of negotiating a pandemic rent suspension clause. The courts gave detailed consideration to the impact of the pandemic on business lease renewals and predicted that pandemic rent suspension clauses are likely to become standard.

In this case, the tenant operated a newsagent and post office from a unit within a large shopping centre. The lease was up for renewal, during which time the country was in a national lockdown and non-essential retail units were closed. As WH Smith contained a post office the shop was not required to close so stayed open. Sales were down by 90%.

Both parties agreed the renewal lease should contain a pandemic rent suspension clause. However, they could not agree on a trigger for that clause. The landlord said that the trigger should be if the tenant was required to close. The tenant said the trigger should be when other non-essential businesses were forced to close.

Where parties cannot agree on terms, either party can apply to the court who will determine the new terms of the lease. The court will have regard to the terms of the current tenancy and to all relevant circumstances.

In WH Smith v Commerz, the judge agreed with the tenant that the rent suspension clause should be triggered by the closure of non-essential retailers. He commented that any benefit for the tenant to remain open on an otherwise deserted shopping centre was more notional than real.

The case is an interesting example of how the pandemic has had an effect on business leases. Careful consideration must be given when drafting rent suspension clauses. A few points to consider are:

• What is the trigger?
• What is the risk?
• What are the landlord’s obligations?
• What is suspended? Just rent or other financial payments?
• What will end the suspension?
• Will the clause allow for termination of the lease?

The above is not an exhaustive list. Legal advice should be sought when negotiating terms. If you are currently in the process of negotiating a new lease and require legal advice, please contact our team.

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