There still remains considerable uncertainty in relation to the medium to long-term effects of “Coronavirus” (Covid-19) in the UK. However, it is likely that the economic effects will last for months as opposed to weeks. The Government’s handling of the outbreak also remains uncertain in the medium to long-term.
Possible termination of contracts or leases
In our earlier blog we referred to the fact that it is likely to be highly problematic for tenants to look to argue that ongoing obligations under a lease are frustrated by the outbreak or that a Force Majeure event has occurred to bring to an end the liability under a lease.
English common law does not recognise Force Majeure and therefore the ability to suspend or terminate obligations under a lease or any other contract is wholly dependent upon the express wording of the contract. Even if the contract contains such a provision, it is the obligation of the party attempting to rely on such a clause to show that its performance of the contract is legally or physically impossible. If performance is merely more difficult or expensive this would normally not be enough to engage this.
The implications of what is happening and may happen in the future with the outbreak are considerable. There are many possible examples of what can happen to prevent businesses operating such as failures in the supply chain as well as unavailability of staff but there is also the possibility in the future of Government requirements to cancel events and a possibility that landlords may be forced to close shopping centres or retail or leisure areas or parks or events space.
Most commercial leases contain provisions for suspension of rent but they are usually only in the case of damage by an insured or uninsured risk and will therefore not extend to a closure as a result of the Coronavirus outbreak. The same applies to standard clauses in commercial leases which allow the tenant to end the lease where the premises cannot be occupied again due to damage by an insured or uninsured risk.
It is also important to remember that most commercial leases include an obligation on a tenant to comply with all statutes and notices or orders made by competent authorities. All tenants should therefore keep themselves fully up to date with all advice to avoid being in breach of that covenant.
Landlords also have significant duties both pursuant to their obligations in leases including under health and safety requirements.
Landlords who are employers will also have duties to their staff and others regarding risks posed from infectious diseases. Failure to comply with the requirements in questions can have significant consequences both for organisations and for individuals.
It is likely that a landlords’ responsibility will extend to fully considering the risks of the virus at a particular property and how to minimise that. The risk will generally not extend to the original construction of buildings but more to the potential spread of the virus and what can be done to reduce this.
Where a landlord has granted a lease of an entire building with no ongoing maintenance or service obligations then the landlords’ responsibility will be considerably less. However if a landlord has granted leases of parts of a building where there are common parts which serve several in the building then a landlord does need to be very conscious of its responsibilities. It is safe to say that as a minimum a landlord should ensure suitable handwashing facilities are available in a multi-let building especially where there are common toilets or other facilities. Also it will be prudent for landlords to provide more frequent and thorough cleaning of common parts particularly frequently touched surfaces (for example, door handles, lift buttons and toilets). Landlords should also check that additional cleaning services and costs are fully recoverable under service charge provisions in the occupational leases.
Businesses that hold business interruption insurance should urgently take advice on the terms of their insurance to see whether or not this covers matters including inability to occupy their premises as a result of the outbreak.
All businesses need to be fully conscious of their statutory liabilities and obligations for example health and safety. This whole area has significant liabilities for employers and businesses generally.
Health and safety law contains requirements to ensure that all risks are properly assessed and suitable measures are taken to ensure safety and to generally consult about risks and protective measures.
The current guidance issued by the Health and Safety Executive is that employers should rely upon current advice from the Department of Health and Social Care and Public Health.
The construction industry will be heavily affected by the outbreak and its longer term consequences. We will be providing further guidance in addition to the earlier information provided (see links below).
As we advised previously, it is critical to take account of the outbreak and what seems to be the long lasting implications for Coronavirus in all contracts, leases or documents currently or in the future being entered into. There is likely to be considerable negotiation on such terms but this is now of material importance to all businesses and in all sectors. Any such provisions have not been considered at all until recently but now and in the future cannot be ignored. Such provisions will need to be carefully considered and drafted and will need to balance the competing interests of each party to the contract.
Any employer, landlord or business needs to be fully cognisant of the current situation with the outbreak and the fact that things are constantly changing and proper steps must be taken to fully comply with advice from Government departments or offices including the health and safety executive (where this is available) and must do their utmost to ensure the safety of all employees, visitors and third parties.
Additionally whilst there may be great difficulties in seeking to terminate existing contracts great thought and care will be required when concluding future contracts so as to budget for the possibly long term implications of the virus.
- The current Government guidance for employers on Covid-19
- Covid-19 – every pandemic has commercial consequences
- Covid-19 – Lease advice for commercial tenants
- Coronavirus – General construction considerations
- Coronavirus – An Employer or Contractor Risk?
- Coronavirus – Practical considerations for employers
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Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.
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