by Matthew Austin , Jackie Buckley December-03-2020 in Property, Commercial & Business, COVID-19
Commercial Landlords and Tenants will be very familiar with the considered negotiation that goes in to agreeing the form of commercial lease that will govern their relationship, during the term of the Lease, however long or short that may be. Commercial Leases cover all sorts of issues including how the parties will deal with events such as the Tenant becoming insolvent and what will happen to the Lease if the premises are damaged or destroyed. However, Landlords, Tenants and their advisors did not foresee the consequences of a global pandemic such as Covid-19. This combined in many cases with the closure of premises and an inability to trade has left both Landlords and Tenants in a difficult position which has not been dealt with in their Leases. Tenants have been left unable to pay their rents. Landlords, in some cases have been unable to discharge their obligations to funders.
As indicated in an earlier article, this has led to the publication of the Code of Conduct for Landlords and Tenants for Commercial Rents. It is hoped that this will help deal with some of the issues that are arising in the context of the Landlords and Tenants trying to find a way to work through these issues. However, some of these decisions will inevitably come before the courts. A recent decision of the High Court in the context of a commercial landlord and tenant dispute offers some insight as to how the Court will approach disputes concerning the inability of a tenant to pay rent during the Covid-19 pandemic.
The case in question
In the case of Oysters Shuckers Ltd -v- Architecture Manufacture Support (EU) Ltd [2020] IEHC 527, a number of disputes as between the landlord and tenant of a commercial premises came before the Court for determination. The proceedings had commenced by way of an interim injunction application by the tenant seeking an order preventing the landlord from taking immediate possession of the premises. The tenant’s initial application was successful. The tenant relied on section 5(7) of the Emergency Measures in the Public Interest (Covid-19) Act 2020 (“the Act”) which banned all ejectments of tenants for a certain time period. However, when the matter came back before the Court, following the initial application by the tenant, the time period provided for in legislation had run out. Therefore, at the interlocutory stage of the injunction application, the protection offered to tenants by the Act had lapsed and the Court came to consider the matter in accordance with the usual principles of law governing injunction applications and commercial leases.
Arguments and Court’s decision
Amongst the arguments canvassed by the tenant in the litigation was an argument that the tenant should not be evicted during the course of a global pandemic. Judge Sanfey, in delivering his judgment, adhered closely to the terms of the agreement that had been recorded in writing as between the landlord and tenant in the form of the commercial lease. He was of the view that to interpret the lease in the manner contended for by the tenant, in relation to the Covid-19 pandemic, would change what the parties had agreed and reduced to writing in the lease. Judge Sanfey ruled that the tenant was obliged to continue to pay rent despite the Covid-19 pandemic as the lease had not provided for a scenario whereby the obligation to pay would be suspended in such a situation. Judge Sanfey was of the view that particular injustice would be done to the landlord if he were to imply terms into the lease in the manner contended for by the tenant.
Commentary
The case is a useful illustration of the Court’s attitude to arguments which seek to imply terms into commercial leases allowing for the suspension of integral obligations in such leases (in this case the obligation to pay the agreed rent). In particular, it highlights the need, absent legislation which over-reaches the agreed terms, for a commercial lease to provide for a scenario whereby the obligation to pay rent will be suspended in circumstances of emergency. If the Court is to be persuaded that non-payment of rent during the pandemic is permissible in the circumstances then the commercial lease will need to have provided for that either specifically or by means of a clause which is sufficiently broadly drafted so as to cover such a situation.
The Future
It is now the case that a “pandemic” type clause is becoming the most negotiated clause in new lease arrangements. This was unheard of before March 2020. In some cases, these clauses are being negotiated to refer to Covid-19 but for the most part, Tenants are attempting to make them as broad as possible by including not only Covid-19, but also any other virus or disease that may have a similar impact. Tenants are looking to have their obligations reduced by demanding a suspension of rent and service charge for periods of closure. This may seem fair, but one also has to balance the interest of the Landlord who may in turn have its own obligations to a funder. For some Landlords, a pandemic clause is simply a non-runner. In each case, an assessment needs to be made as to who is the most appropriate party to bear the risk of another pandemic. Another factor in this analysis is the type of premises that the Lease will relate to. In retail, it may seem more straight forward, but this is not necessarily the case if the parties are negotiating a lease for an office premises. Arguably, the Tenant in such a situation will not be impacted in the same way but they could find themselves in a situation where they are operating with reduced capacity in the premises, which in turn will affect their ability to pay rent.
One way or another, the future of commercial leases is changing. In the Oyster Shuckers case, Judge Sanfey noted that the obligation to pay rent is an integral and fundamental part of the contract, and although it can be suspended in certain situations, this did not apply to the facts of the case. In addition, the Tenant could not argue that the rent obligation was frustrated, while the lease itself remained valid. It is expected that these very issues will be considered as express terms in leases going forward, or at least will have been considered and refused.
If you have any queries on the issues raised, or if you are looking for advice and guidance on commercial leases from either a landlord or tenant perspective, please contact Partners Matthew Austin maustin@hayes-solicitors.ie or Jackie Buckley jbuckley@hayes-solicitors.ie at Hayes solicitors.
Back to Full NewsShare this article:
About the Authors
Matthew Austin
Matthew is a partner in the Commercial & Business team and has considerable expertise in a range of practice areas, having acted for Irish and International clients in domestic and multi-jurisdictional issues. Matthew has advised in civil and administrative law disputes and in regulatory and advisory matters including insolvency/restructuring, IP, defamation and media law, competition and consumer protection and data protection.
Jackie Buckley
Jackie is Head of the Property team at Hayes solicitors. She is a highly experienced adviser to clients in the banking, public and retail sectors on all aspects of the sale, purchase, leasing, development and financing of properties. She has extensive experience of advising landlords and tenants in insolvency situations and has advised in recent high profile examinerships.