Worthingtons Solicitors

COVID-19 pandemic raising thorny issues in commercial property transactions

If you are involved in any aspect of the commercial property industry it is unlikely that you have so far managed to avoid having to grapple with the numerous practical issues that lockdowns, staff illnesses, positive test results and the like are presenting us with. More lockdowns, either local or national seems inevitable and as the use of track and trace technology extends and depends across the population we can expect more regular and widespread disruption as more and more people are unable to work or work as effectively as before.

Here are just some of the issues that we are seeing and trying to address:

Sale and purchase contracts

Whether it involves commercial or residential property, almost every aspect requires human involvement, from the solicitors preparing the legal documents and discussing them with clients to the surveyors visiting the property and the removal people on the day of completion. Illness and the requirement of all contacts to self-isolate can quickly escalate into a scenario where one party simply cannot complete (at least without breaking the law) and therefore finds himself in breach of contract and open to court action. It will rarely be in any party’s interest, when looked at objectively, to have inflexible contracts leading to costly and lengthy litigation so solicitors are finding ways to keep transactions on the rails for example by building in permitted delay clauses. So where one party is affected by a “Coronavirus Event” (and can demonstrate that to the other party) which prevents that party from performing its obligations under the contract the completion date will be automatically extended until the affected party can certify that it is no longer so affected. Provision can also be made to extend key dates in development contracts such as dates by which planning permission is to be obtained and certain construction milestones are to be reached, where site closure has prevented work from progressing. Of course the devil is always in the detail and the parties need to carefully consider and agree what exactly will constitute a reasonable cause for delay and how long the delay should be allowed to continue. In large-scale developments which would in normal times take years to complete, typically involving armies of contractors and sub-contractors, these sort of considerations will not be easy.

Landlord and tenant

In addition to advising clients on where they stand under the terms of their existing leases, solicitors are also having to give urgent and detailed consideration to what provisions a new lease should contain in the “new normal” of a COVID-19 world. What customary lease obligations might need to be re-examined and qualified in 2020? In a shopping centre lease, for example, it is a long-established norm that tenants covenant to keep their shops open and trade actively. Obviously this is not possible (and indeed is illegal) during a lockdown. Equally a landlord will usually covenant to keep the common parts of the shopping centre open to the public – again illegal in that scenario. So some sort of appropriate qualification to these obligations is needed. That is easy enough but would the tenant want to go further and seek a suspension of rent and service charge in the event that it cannot occupy and trade?

Section 82 The Coronavirus Act 2020, which has been in force since 25 March 2020, provides that a landlord’s right of re-entry or forfeiture (termination) in a tenancy of business premises for non-payment of rent (which will often include service charge) may not be enforced during “the relevant period”. Originally that period ran only to 30 June but has recently been extended, for a second time, to 31 December 2020.  This does of course however leave open the possibility of proceeding against tenant for breach of other covenants in its lease, such as the covenant to keep open and trade although given it may well be illegal to do so, such a remedy is more theoretical than real. Also a tenant may still be pursued for non-payment of rent (short of forfeiture/re-entry) which still remains due and payable despite any lockdowns.

Another possible remedy often resorted to by landlords is the service of a statutory demand upon the tenant followed by the presentation of a winding up petition in the case of corporate tenants. Again, however, this remedy has been restricted by statute, in this case the Corporate Insolvency and Governance Act 2020, which prohibits such action during “the relevant period” which, after a recent extension, is currently going to end on 31 December 2020.

In conclusion and above all, parties involved in these sort of property transactions will need to take a considered and patient approach to addressing the issues thrown up by the current pandemic, if deals are to be preserved and the wheels of the property industry are to keep turning. The role of agents and solicitors will be critical in that endeavour and I firmly believe that the industry in Northern Ireland has the necessary expertise and goodwill amongst its professionals to achieve that.

If you require any advice in relation to commercial property transactions, please contact Graham Pierce on 028 9043 4015.

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