The County Court in England & Wales recently considered whether a tenant could force a landlord to accept a pandemic clause into its new lease. Poundland Limited v Toplain Limited was a lease renewal under the Landlord and Tenant Act 1954 ("Act"). The parties had agreed many of the material terms such as rent and the term, but a number of points remained outstanding including the tenant's request for a 'pandemic clause'.
What was the pandemic clause being proposed?
During any 'use prevention measures' (which were to include any government-imposed lockdowns), rent and service charges would be reduced by 50%.
The parties' respective arguments
The tenant contended that such clauses are now commonplace in the market and sought to rely upon the recent decision in WH Smith Retail Holdings Ltd v Commerz Real Investmentgesellshaft MBH. It asserted that such a clause would prove beneficial to both parties - a rent relief would enable the tenant to continue trading, therefore allowing it to meet ongoing obligations under the lease.
The landlord disagreed, arguing that a market precedent for such a clause had not yet been established and any future lockdown would likely be controlled by legislation, which it said the tenant would be able to take use of. The introduction of the pandemic clause, which required a new shared risk, would result in a fundamental change of the relationship between the parties.
The court said WH Smith was different, because unlike this situation the parties in WH Smith had already agreed to the inclusion of a pandemic clause within the renewal lease and were simply seeking to determine its mechanics. No such agreement had been provided by the landlord here.
The court was to only consider the terms of the existing lease and 'all relevant circumstances'. It said that the impact of the pandemic was not a sufficient reason for introducing the pandemic clause into a new lease. To impose a shared commercial risk, where such risk to pay rent ought to lie solely with the tenant, would redraw the parties' respective burdens and would not be fair and reasonable.
Poundland and WH Smith show just how each case will turn on its own facts; and acts as a reminder to any party wanting to introduce something new to lease negotiations – that you must be able to justify why such a change should be included. The tenant here had simply failed to do that.
If you have any concerns or questions about pandemic clauses in a commercial lease renewal or how such a clause might impact your business and what you can do about it, please do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.