Incorporating Pandemic Clauses Within Commercial Lease Renewals

Since the outbreak of the pandemic, there have been several measures introduced by the Government to provide support to commercial tenants. One related area of interest for landlords and tenants is the topic of lease renewals and if tenants are able to add terms to their new leases which would reduce rent and other liabilities in the event of future pandemic lockdowns.

This subject was considered in the recent County Court case of Poundland Ltd v Toplain Ltd.

Poundland Ltd v Toplain Ltd

Summary

Poundland (the Tenant) had requested that a new term be incorporated within their renewal lease which would reduce the annual rent and service charge by 50% during any so-called “use prevention measures” (being the term used to define the recent Covid-19 lockdowns). Whereas the vast majority of the lease terms had already been agreed, Poundland was arguing that the inclusion of such a pandemic clause would “modernise” the existing lease terms.

Toplain (the Landlord) disagreed with this point of view, arguing that there was no precedent for this type of clause to be added to the lease renewal and it would also significantly change its commercial relationship with Poundland. The Landlord further argued that any future Covid-19 lockdowns would be controlled by Government legislation, as has been the case since the outbreak of the pandemic, and that the Tenant would benefit from such legislation.

As the two parties disputed the inclusion of this Covid-19 related clause, it was to be determined by the Court under Section 35 of the Landlord and Tenant Act 1954, which provides the Court with discretion to determine the terms of a new lease when one party is proposing new terms which the other party does not consent to.

Judgment

When considering these types of cases (e.g. where the terms of a lease renewal cannot be agreed between parties), the Courts will adopt the approach applied in the case of O’May v City of London Real Property Co Ltd [1983]. This case asserts that the Court should not permit for a departure from the terms of the existing lease unless the proposed change is fair and reasonable for both parties and the burden of changing the lease falls on the party proposing it.

As a result, the County Court ruled in favour of the Landlord, with District Judge Jenkins deciding that it would not be fair and reasonable to Toplain to introduce such a clause to the lease, as:

  • They could not be expected to share the risk in the situation with which they would have no control; and
  • Where the Tenant could benefit from Government reliefs or schemes.

The judgment in this case, whilst not binding since it is at County Court level, means that tenants seeking new pandemic related clauses may struggle to have them included in new leases.

Poundland ToplainHow can Nelsons help?

Oliver Maxwell is a Senior Associate in our Dispute Resolution team, specialising in property disputes.

For more information in relation to the subjects discussed in this article, please call Oliver or another member of the team in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online form.