Home Office estimates suggest there are between 10,000 and 13,000 victims of modern slavery in the UK, with 45,000,000 estimated victims across the world.

The Modern Slavery Act, which has been in force for just over a year, aims to combat slavery and human trafficking. A key provision of the Act is the requirement that all businesses that trade in the UK with a turnover of over £36,000,000 publish an annual statement disclosing the steps they have taken to ensure that slavery or forced labour and human trafficking are not taking place in their business or supply chains. The Act applies to forced labour at any point in the supply chain, including acts that would not constitute an offence in the country in which they are carried out, but would constitute an offence in the UK.

Compliance within the landlord and tenant relationship

A landlord will form part of its tenant's supply chain for the purpose of the Act as the landlord provides service to the tenant. Landlords should therefore be prepared for a greater level of scrutiny when entering into a new lease with a tenant company that has its own reporting obligations under the Act.

A tenant is, however, unlikely to form part of its landlord's supply chain, unless the tenant provides additional services to the landlord. Accordingly, to date, much of the focus for landlords has been on updating commercial contracts, particularly construction and service contracts, to ensure that all parties in its supply chain agree to comply with its anti-slavery and human trafficking policy. There is, however, a potential reputational risk for landlords, particularly when contracting with large retail tenants selling food, garments or other items sourced or manufactured overseas.

Reputational risk

A tenant that falls short of its obligations under the Act, by failing to publish an annual statement, or publishing an annual statement that highlights areas of potential concern, may be subject to scrutiny by its customers, pressure groups, trade organisations and/or media. As a result, landlords are increasingly looking to take steps to ensure that they are not tainted by any reputational damage suffered by their tenants.

New leases

A landlord entering into a new lease can take steps to minimise the reputational risk by checking a potential tenant's compliance with the Act before entering into a lease. This is a relatively straightforward task, as unless the tenant's turnover is below the £36,000,000 threshold, the annual statement required to comply with the Act should be freely available on the company's website. The landlord can review the annual statement and choose whether or not to enter into the lease.

Ongoing compliance with the Act by the tenant once a lease has been granted can be controlled, to some degree, through the standard tenant's covenant in the lease to comply with all statutes during the lease term. If a greater degree of control is desired, perhaps due to a particular sensitivity as to the nature of the tenant's business, a specific tenant's covenant to comply with the landlord's modern slavery policy (and to procure compliance by ensure all those in its supply chain) may be required.

Assignment

Control following an assignment is not so straightforward. If, as is common, a lease is freely assignable, or may be assigned with the landlord's consent (not to be unreasonably withheld) it may not be "reasonable" for a landlord to object to an assignment on grounds that it has not published an annual statement to comply with the Act, or that such statement is unsatisfactory. If the lease contains a landlord's pre-emption right then that could be exercised albeit that this might not be commercially acceptable to the landlord at that time. Not all leases will contain such a right in any event.

What landlords should do

Landlords with a turnover of more than £36,000,000 will need to ensure that an appropriate annual statement is produced and that contracts with suppliers contain provisions to ensure compliance with the Act. All landlords should consider making additional checks against a tenant before entering into a lease and the possible inclusion of clauses to minimise the risk of any reputational damage to the landlord. Any such clauses will, however, need to be balanced with the requirement to ensure that so far as is possible the lease terms remain attractive to tenants, and do not have an adverse impact on any rent review.