COVID-19 - property managers take note

As this is a fast moving topic, please note that this article is current as at 27/03/20. For further information, please contact Jeremy Palmer or Simon Dawes.

No-one knows how long the COVID-19 crisis will continue but the longer it goes on, the number of unforeseen problems with which property managers will have to grapple will surely increase. To date, most commentators have focussed on the very real issues arising from tenants being unable to service rent commitments and landlords than being unable to service their debt obligations.

In the coming weeks and months, we will see how this dire situation will develop and whether any further government support, controls or intervention will ensue. In the meantime property managers need to be vigilant to ensure that they continue to monitor key dates extremely closely.

The impact on break clauses

Where a tenant intends to exercise a lease break, the terms of service of the exercise notice and the conditions applicable to the break need to be even more carefully considered than previously.

Many contracts preclude service by email, leases being no exception, and whilst for the time being the postal service in the UK continues to operate, it is quite conceivable that an even more restrictive shut down will occur and the post office will no longer be operational. If you are contemplating exercising a break clause it would be prudent to serve the notice without delay.

Many break clauses will have conditions attached, all too often requiring tenants to provide vacant possession. If restrictions prevent you from removing tenant’s furniture and other items or a general shutdown precludes your appointed contractors from carrying out reinstatement works to comply with a vacant possession condition, you risk being obliged to carry on paying rent and other outgoings on premises that are surplus to requirements. If there is a danger you will be in this position you may wish to approach your landlord with a view to agreeing a postponement of the break date. Depending on the exact circumstances, you may need to compensate the landlord but in these extraordinary times responsible landlords and tenants trying to do the right thing by each other are more than likely to reach a sensible compromise.

The impact on conditional property contracts

Landlords and tenants alike need to closely monitor any conditional property contracts that they have entered into and check carefully the wording of the relevant conditions. By way of example a landlord who is contractually bound to carry out Cat A works by a long-stop date will need to keep under close review whether it is still going to be able to meet that date. If, as seems increasingly likely, there is a general shut down extending to all construction projects, more and more projects will be subject to delay.

Comment

Where problems are envisaged in contractual obligations being performed it would be sensible for the parties to discuss variations to previously agreed terms sooner rather than later whilst there exists a spirit of co-operation to deal with the effects of COVID-19.