The pandemic has had a huge impact on everyone, and this is particularly true of businesses. In such uncertain times it can be difficult to know what the right decision is for your business, especially when it comes to renewing a lease. In the face of perhaps another lockdown, renewing a lease could be an expensive decision. However, as B P Collins, highlights, some businesses have attempted to minimise the risk that lockdowns bring to trading; with the use of a pandemic clause.
In the case of Poundland v Toplain Ltd, the tenant (Poundland) wanted a pandemic clause inserted into the renewal lease. This pandemic clause would have meant that the tenant would only pay 50% of the rent and service charge during a lockdown. Unsurprisingly, this clause was contested by the landlord and so the tenant asked the courts to intervene. Poundland argued that a pandemic clause would be consistent with the changing way businesses were now operating.
The tenant also tried to rely on WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft mbH. This case concerned the operation of the pandemic clause and not the inclusion of one, but nevertheless, it was important as the court took into account the impact of the pandemic on business when making its decision. It was believed that this case would make it easier for tenants to incorporate a pandemic clause in a lease renewal. Poundland had hoped that the court would take a similar approach when deciding their case. However, the court was not persuaded by the tenant’s arguments.
Ultimately, the court relied on O’May v City of London Real Property Co Ltd and did not decide in the tenant’s favour. O’May establishes that when a lease is renewed, any terms that depart from the original lease must be fair and reasonable. The court held that the pandemic clause would disproportionately affect the landlord. The tenant’s business may only be temporarily affected whereas the landlord is risking the security of their property investment. In addition, the tenant may still have other avenues of revenue or be able to obtain government funding or relief.
This ruling shows that despite the earlier case of WH Smith, it is not that easy for tenants to include pandemic clauses in renewal leases. If there are any future lockdowns perhaps pandemic clauses will begin to be more widely used. For further advice please contact our property team on firstname.lastname@example.org or call 01753889995.