Victory for Landlords: Pandemic Clauses
In the recent case of Poundland Limited v Toplain Limited, the Court considered whether the insertion of ‘pandemic clauses’ in a new business lease would be fair and reasonable.
The tenant, Poundland Limited (Poundland) initiated the lease renewal and the parties sought from the Court determination of the terms of the new lease.
Poundland proposed that various ‘pandemic clauses’ be inserted into the business lease. The ‘pandemic clauses’ included Poundland not being required, during any future lockdown, to pay the full amount of rent and service charge (a reduction of 50%). Poundland also sought to include a term that during any future lockdown the landlord would be prevented from exercising the forfeiture provision.
The tenant relied upon the earlier decision of W H Smith Retail Holdings Ltd v Commerzinvestmentgesellschaft mbH (WHSmith), in which the parties already agreed to the inclusion of a rent reduction clause within the business lease. The Court in WHSmith determined the triggers for the rent reduction clause.
The Court noted that unlike the decision of WHSmith, Poundland was asking the Court to insert new ‘pandemic clauses’ and for that reason the Court declined to following the decision of WHSmith.
Considering the case of O’May v City of London Real Property Co Ltd (O’May), the Court noted that the Court’s powers do not extend to freely using its discretion to change existing lease terms. It was for Poundland, as the party seeking to vary the lease, to prove that the insertion of the ‘pandemic clauses’ in the lease would be fair and reasonable.
With O’May in mind, the Court held in the landlord’s favour, agreeing that it would be unfair and unreasonable to include the ‘pandemic clauses’ on the basis that the purpose of the Landlord and Tenant Act 1954 was not to protect the tenant against commercial risks but was to allow the tenant to continue their business following the contractual expiry of the lease; the risk should not be shared between the tenant and the landlord, particularly due to the fact the landlord would have no control over any potential future lockdown.
The Court was particularly mindful of the fact that Poundland would be able to seek relief from government schemes which might be available and which landlords could not benefit from.
To much relief for Landlords, if the Court had decided in favour of Poundland, this decision may have opened the floodgates for ‘pandemic clauses’ becoming the norm.
It is important to note of course that most lease renewals are negotiated between landlord and tenants therefore do not reach a final court hearing. The courts are limited in what they can prescribe therefore it is always best to try and agree terms between the parties.
Rent reductions and any ‘pandemic clauses’ should be considered carefully given that lockdown has now eased, advice from an agent regarding market conditions is recommended.