The Government has to date taken some steps aimed at protecting the position of commercial property occupiers by introducing a moratorium on forfeiture action for non-payment of rent and the various amendments made to the Civil Procedure Rules to seek to prevent or delay landlords seeking possession through Court proceedings. In the last few days the Government has also announced further measures to protect commercial tenants from “aggressive rent collection”.
Whilst these provisions protect tenants from landlords seeking to benefit from any adverse impacts of Covid-19, the Government may well have overlooked the practical difficulties its response to Covid-19 may have on tenants seeking to comply with conditions associated with break notices.
As an example, consider the position where a tenant has served a break notice to terminate its lease on 1 May 2020 and the successful exercise of that break right is conditional on giving vacant possession of the property. In order to comply with that condition (and therefore to terminate its lease), it will need to ensure that all of its belongings have been removed from the property by the break date.
However, since mid-March, the tenant has complied with government guidance and closed its premises, and/or furloughed the majority of its staff, and it has not cleared out the property in order to hand it back to the landlord. The tenant would by no fault of its own potentially need to breach social distancing guidance, and potentially commit a criminal offence, in order to attempt to comply with the break condition. Further difficulties would also arise if a break condition required a tenant to comply with a repairing obligation. Is a tenant going to be able to find a contractor willing/able to undertake the necessary repairs?
The question therefore has to be, in the current climate if a tenant is required to provide vacant possession on a break date (or needs to have complied with a repairing obligation or other potentially onerous condition), as a result of the restrictions imposed regarding Covid-19, does the tenant have to comply with break conditions that are affected or can they be ignored?
These difficulties have arisen due to the restrictions imposed by the Health Protection (Coronavirus, Restrictions) (England) Regulations 2020 (which are mirrored in Welsh legislation), specifically, Regulation 4 (Requirement to close premises and business during the emergency), Regulation 5 (Further restrictions and closures during the emergency period) and Regulation 6 (Restrictions on movement). The combined effect of these restrictions potentially impose legal restrictions on tenants’ ability to comply with break conditions.
Whilst the Regulations impose various restrictions on businesses and the public, it is highly questionable whether the restrictions make it legally impossible for a tenant to comply with a break condition (cue the lawyers entering from stage left having academic debates regarding the implications of force majeure, frustration, illegality and a host of other potential avenues of argument). However, what is clear is that the combined effect of the Regulations may well make it almost practically impossible for a tenant to comply with a break condition.
Therefore, where does this leave a tenant with an impending break date? Unfortunately, the answer in all likelihood is: ‘potentially in some difficulty’.
It is well established that conditions in break clauses need to be strictly complied with. The Government has not yet introduced any legalisation which absolves a tenant from having to comply with break conditions, and any tenant with an upcoming break date should seek advice on any break conditions to ensure that they are fully aware of the requirements to satisfy the condition (potentially to the minimum standard required).
Even if it is not illegal for tenants to instruct companies to remove their belongings and/or undertake repairs, these companies may not have sufficient workforce in place (following furloughing or sickness absence), or may not be prepared to risk the health and safety of their staff in the current climate or the potential adverse publicity of continuing to operate when government guidance is ‘stay at home’.
A potential glimmer of hope is that the message from the Government to landlords regarding breaches of commercial rent terms is clear. The Government is seeking to protect commercial tenants during this period and expects landlords and tenants to work together to address issues arising as a result of Covid-19. With this clear message in mind, tenants who find themselves in difficulty complying with a break condition could consider approaching their landlord to discuss the issues and seek a resolution to the difficulties caused by Covid-19, perhaps by requesting a wavier of the requirement to comply with the condition.
If you have an impending break date or are considering serving a break notice, please do not hesitate to contact our Property Litigation team who will be able to help you navigate these uncertain times.