Since the pandemic began landlords and tenants have considered its impact on their current lease obligations and how it may affect the future. It is apparent that many tenants on renewal under the Landlord and Tenant Act 1954 are seeking to include new clauses relating to their obligations should there be further lockdowns or issues preventing completely or limiting trading. These new clauses have been termed “pandemic clauses” and whilst the exact wording varies the intended effect is to allow the tenant to pay less or no rent during a particular period.
The first case on pandemic clauses appeared on the face of it to be a win for tenants. In the lease renewal considered in W H Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft MBH (unreported) pandemic clauses were included. However, the parties have in fact agreed in principle that they should apply to a shopping centre property but disputed when exactly the clauses would be triggered.
Today, in Poundland Limited v Toplain Limited, we have the first decision as to whether pandemic clauses should be imposed on a landlord who opposed their inclusion. In a lease renewal, new terms are only to be incorporated if they are “fair and reasonable”. This is a relatively wide discretion for the Court’s to consider, however, the basic premise that the tenant is entitled to renewal on the same terms means in practice changes to the substance of the obligations should be avoided. The Judge, in this case, explained that:
“It is not, therefore, the purpose of the legislation (and so the court in exercising its discretion) to approve (opposed) amendments to the lease which would result in a change to the respective risks, obligations and benefits carried and enjoyed, nor to insulate the tenant against the commercial and trading risks they may face in a way that would either prejudice the landlord or interfere with their long term interests”.
It is for the party seeking the change (so a tenant in this scenario) to overcome the hurdles of the burden of proof. Weight was given to the fact that the landlord has no control over a pandemic or the Government’s reaction to it. Further, tenants have during COVID-19 and may in the future, benefit from Government assistance. The Court, therefore, determined that on balance the proposed pandemic clauses were not “fair and reasonable” and were not incorporated into the lease renewal.
It remains to be seen if this decision will be followed and if variations in the circumstances (proposed wording of the terms, location of the premises etc.) will lead to a different result, but this case is support for the landlord’s who are opposed to taking on a risk that they did not have in the original lease.
There is also likely to be an interesting development of negotiations for new leases (not lease renewals) where tenants with a stronger bargaining power may seek to include pandemic clauses from the start of the contractual relationship. Landlords who need a tenant in occupation may be more willing to consider these terms being negotiated and agreed upon. If they are included then on renewal the starting point is their ongoing inclusion and so it is possible they will be seen in years to come despite this decision.