The effect of coronavirus has hit the real estate market, lowering stock market values, postponing MIPIM and causing concern across the whole industry. Undoubtedly, for those who have control of a commercial property (be it as a tenant occupying premises, a landlord of multi-let premises with responsibilities for common parts and /or voids, or as a management company) the concerns may be greater.
What are your responsibilities?
If you let, manage or occupy commercial property, you have social and legal responsibilities in the face of COVID-19 in respect of those parts you control:
- Legally, you must comply with all legislation in relation to the parts of any building you control. This will include health and safety legislation and any standards set by the Department of Health and Social Care, as well as any coronavirus-specific legislation or regulation made by the government.
- Socially, businesses will be expected to help prevent the spread of the virus by taking appropriate containment steps. In China, we have seen firm measures, with multiple accounts of some companies (including WeWork) asking their customers to have their temperatures checked on entering buildings and to wear masks once inside. There are also reports that people are being asked to access properties through disinfection tunnels which spray people with an anti-viral mist. Less drastic measures that can be put in place immediately include introducing hand sanitisers in common parts and intensifying cleaning regimes of shared facilities and spaces, particularly those “contact hotspots” – entrance barriers, door handles, lift buttons, kitchen and bathroom facilities.
Given the nature of the premises, landlords of co-working spaces, student accommodation and senior living accommodation may have more onerous duties in relation to the users of those premises.
What if there is a suspected case of coronavirus?
If there is a suspected case of coronavirus, that individual may need to self-isolate immediately– preferably in an area away from others and behind a closed door. How, practically, could you facilitate this within your premises? In certain environments this will present more of a challenge (for instance, in a large warehouse or shopping centre).
And if the case is confirmed?
Where your property is linked to a confirmed case, you should immediately inform Public Health England or Public Health Wales (as appropriate) who will then specify the action you should take. You may be asked to evacuate, close and decontaminate the premises. You may also need to assist with tracing contacts and providing information about who has visited the property.
If you employ people to work in the property (such as cleaners, front of desk staff, or maintenance workers) you may have legal responsibilities in your capacity as an employer. For more information on responsibilities of employers in the face of coronavirus, see our insight: What employers need to know and do.
Who foots the bill for additional services?
Implementing measures to combat the spread of coronavirus will cost money. Leases will often allow a landlord providing services to recover from a tenant the costs incurred as part of “good estate management” or as “required by statute”, although there could be a limit to the amount that can be recovered, if, for example, there is a service charge cap or any exclusions. Landlords and tenants alike should review what their leases say in respect of these potential costs. It might also be worthwhile checking insurance policies to see if you can recoup any additional costs through an insurance claim.
What happens if premises are closed?
Closing premises will have cost implications. For some businesses, not being able to operate out of their premises could result in huge operational costs (for instance, if a factory needs to shut for a deep clean following a confirmed case, production would cease).
There will also be the question of overheads: if access to premises is restricted, who covers the cost of the rent during the period of inaccessibility? While most leases will contain a rent suspension clause, it is unusual for this to be linked to anything other than “insured risks”. Standard commercial property insurance is usually triggered by physical loss or damage, rather than business interruption caused by health epidemics. Whether you are a landlord or a tenant, you will want to check the terms of your lease to see what grounds trigger a suspension of rent (if any).
You should also check your insurance policy, which may allow you to claim for business interruption.
Can you end the tenancy?
Can you bring a tenancy to an end (or refuse to enter into a new one under an existing agreement for lease) on the basis of force majeure? Breaking contracts over coronavirus is harder than it sounds. Find out more about force majeure, supply chains and contractual performance.
What about properties not directly affected?
Even if your property is not directly affected, you will undoubtedly be feeling the impact of the virus. It is anticipated that the impact will be felt well into the future amid speculation that businesses are likely to postpone taking leases and entering into contracts, pending the outcome of the outbreak.
Retailers and the High Street fear the disease could cause business failures. In China, retail has suffered hard at the hands of coronavirus, with news of big names such as Starbucks and Apple closing stores in Greater China. In the UK, a decline in tourism has already led to a drop in footfall in shopping centres and high streets. It is also feared that coronavirus could accelerate the domination of online shopping, as people abandon bricks and mortar shops to avoid public places. This has left retailers and restaurateurs deeply concerned at a time when there are already well-documented challenges. The threat of curbs on travel and social movement may be too much for some already struggling businesses. In China, some landlords of retail malls have reportedly already taken action to try to help their tenants to stay in business, providing relief in the way of rent reductions and suspension of operating costs. It may be that UK landlords will have to follow suit.
What does the future hold?
We may start to see specific contractual provisions and obligations relating to viruses, for instance, increased obligations relating to services, like hygiene, in tenancy agreements and an expansion of termination provisions in contracts. It could also have the unintended effect of being the catalyst for digitisation in real estate, with a more widespread adoption of proptech. Could robots cleaning and sanitising our buildings become the norm?