The Effect of COVID-19 on Commercial Property

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28 April, 2020

A few years ago, US Secretary of State Donald Rumsfeld, made a statement about unknown knowns and known unknowns, which is an example of the struggle of trying to articulate uncertainty into a decision-making process. In recent weeks, clients and property lawyers have been attempting to distinguish the known/unknowns caused by COVID-19 whilst trying to provide some new definitions and certainty into agreements.

The watchword of the past few months has been "unprecedented". A written "precedent" is used to provide a certain set of virtually pre-agreed terms and conditions that operate without much controversy in normal circumstances, and give a framework on which to hang bespoke parts of the deal. COVID-19 has of course been difficult for everyone and for a property lawyer, presents new challenges in the approach to such precedents.

It is worth highlighting some of those recent attempts: -

Commercial Lease and Rent Concession Letter

Many commercial Landlords have accepted that, because Tenants' businesses have ceased or diminished, they will struggle keeping to rent commitments. Rather than simply verbally agreeing that the Tenant doesn't need to pay the rent for a while, which could lead to confusion when things get back to "normal", a rent concession letter sets a clearer understanding of the future and can deal with elements such as:

  • Whether the rent is waived altogether or simply deferred to a later date; and
  • It can deal with the "keep open" covenant that is contained in lots of leases, as adherence to this will not be possible during lockdown.

The benefit of the letter is speed of drafting which is a crucial element. Where a simple letter will not suffice, a deed of variation may be more appropriate.

Commercial Sale and Purchase Contracts

Where a contract is about to be exchanged, some thought needs to be had into the potential completion dates and the likelihood of delay due to COVID-19. It is possible to vary an agreement that has been exchanged if the parties agree. Where a party is unable to complete on the set date, this would give rise to compensation payments and eventually possible termination of the agreement. This may not serve either party well if the only reason for this is complication caused by the virus. A new drafted clause can address:

  • The fact that a party will not be in breach of its obligations because of a delay caused by COVID-19, and how to define this;
  • The right to serve a notice to complete to be suspended while the event relating to COVID-19 is preventing the other part from proceeding;
  • A long stop date allowing the parties to withdraw from the transaction if things have not eased up by a given point; and
  • The government have also produced guidelines regarding Energy Performance Certificates (EPC). They indicate that it is still a legal requirement to have one in place in order for a transaction to go ahead. However, care must be taken and adherence to the stay at home provisions when one is being produced. It is possible therefore to include a conditional element which will allow the parties to complete the EPC when lockdown restrictions are lifted.

The coming months and potentially years will continue to throw up other challenges. With a reasoned and rational approach to new and existing agreements an understanding of the obligations of the parties in this new legal world can become ever clearer.

For more information contact Matthew Jones in our Construction & Infrastructure department via email or phone on 01254 222316. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Construction & Infrastructure department here

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