Pandemic provisions in leases

One of the most notable developments we have seen in leases over the past few years has been the increase in the number of so-called ‘pandemic provisions’ as a reaction to a Tenant’s inability to trade during lockdowns imposed to combat the Covid-19 pandemic.

Broadly, pandemic provisions are clauses which prescribe how the landlord and tenant relationship is impacted if the property is affected by a public health emergency such as Covid-19, and as a result the property is unable to trade, or trade is reduced. Typically these deal with the waiver or deferral of rental payments in those circumstances, but there are a number of other provisions within leases which are also relevant, such as those which oblige a tenant to remain open for trade during certain hours.

Currently, the impact of a pandemic such as Covid-19 is not a risk which is readily insurable within a buildings insurance policy. As such, the provisions of the lease which deal with any impact on a property by damage/disruption caused by risks covered by a landlord’s buildings insurance will not cover periods of closure (or restricted trade) in response to a pandemic and therefore separate provisions are needed where the parties to a lease wish to cover such a scenario.

The importance of including pandemic provisions within leases and in ensuring such provisions adequately covered all possible scenarios which could prevent or hinder a tenant’s ability to trade from a property as a result of a pandemic was prevalent at the height of the Covid-19 pandemic, particularly during periods of lockdown and restricted trading. A significant number of new leases and/or re-gears of existing leases entered into during this time included pandemic provisions in some form. However, there is not considered to be a single set of pandemic provisions and what could be negotiated was usually dependant on the respective bargaining strength of the parties.

The provisions evolved over time to reflect (what felt like) an ever-changing landscape and the introduction of relief and support measures by the Government. Over the course of the last few years we have seen pandemic provisions ranging from a simple waiver or suspension of the rent during periods the tenant is unable to trade or is restricted from trading, to more complex provisions which make the concessions conditional upon a tenant exhausting other forms of relief which may be available to it, such as Government schemes and claims against insurance policies.

More recently the importance of pandemic provisions has reduced, given the time which has passed since the last Government-mandated lockdown, and landlords are not readily offering such provisions in a lease unless agreed at heads of terms stage. Some tenants are less willing to spend time negotiating (what can be) potentially lengthy and complex drafting and would rather agree informal arrangements outside the terms of the lease, particularly where they enjoy good relations with their landlords. Where it is agreed that a tenant will benefit from pandemic provisions, we are finding that often landlords will only offer them as a personal concession to the original tenant to the lease and contained within a side agreement ancillary to the lease, to ensure the benefit of the same does not pass to the tenant’s successors in title.

Moving out of the pandemic, how such clauses continue to evolve, and how often they are used, will be interesting to see as time progresses.