11 June, 2020
COVID-19 is having a huge impact on our daily lives as well as our businesses and, in particular, those who want to grant or take leases of commercial properties (including those who have already exchanged contracts on these types of transactions) are unquestionably anxious about the potential consequences of COVID-19 related delays.
During these unprecedented times, the legal market is endeavouring to adapt and change to this new climate. Most recently, Practical Law, an online legal resource subscription service for lawyers, has published a new standard clause for use in Agreements for Lease to try to deal with transactions which may be delayed by COVID-19 issues, along with the risks of not completing on time. The clause can also be used as a variation clause for an existing Agreement for Lease.
The clause defines the term Coronavirus and provides a non-exhaustive list of the potential events arising from COVID-19 which may prevent or delay completion or the performance of obligations under an Agreement for Lease. Some of the possible events include: staff absences, quarantining or self-isolating, Government guidelines, a disruption or interruption to services, inspections, property searches etc. Further events may be added as the impact of COVID-19 develops.
The clause also states that upon one party becoming aware of a 'Coronavirus Event' that would delay/prevent completion or the performance of its obligations under the Agreement, that party must notify the other as soon as reasonably practicable. The time to give notice will vary for each transaction and all factors should be considered, especially chain transactions.
Those entering into an Agreement for Lease will need to strike an appropriate balance between the respective parties in order to achieve fairness in shouldering the burden of any COVID-19 related delays.
Without a specific clause in an Agreement for Lease, a party who is unable to complete on the agreed completion date could be liable to pay compensation for late completion. The party who can complete may serve Notice to Complete on the other party, making completion 'time-critical' and, if the other party still fails to complete, the contract could be terminated and there could be financial sanctions including loss of a deposit (if payable) or a claim for monetary loss suffered as a result.
However, most parties will not want to immediately terminate an Agreement for Lease if the cause of the delay is beyond the parties' control, such as a pandemic. In this case, the clause provides that: if the delay to completion is due to COVID-19, the delaying party will not be in breach of its obligations and the other party will not be able to serve notice to complete. This effectively gives some breathing space to the transaction.
The effects of COVID-19 are ever-changing, and it is therefore difficult to anticipate all the ways in which a transaction could be impacted. It is important to note that this clause cannot cover every possible outcome; each transaction is different and therefore such clauses will need to be tailored to fit the precise circumstances of the case.
For more information contact Helen Marsh in our Commercial Property department via email or phone on 01254 224217. Alternatively send any question through to Forbes Solicitors via our online Contact Form.