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Covid-19 and Commercial Leases

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As the Covid-19 health emergency continues to escalate in Ireland, many areas of society are being impacted in a way much similar to that of the financial crisis. One area significantly affected is commercial leases.

The Emergency Measures in the Public Interest(Covid-19) Act 2020 was signed into law by President Micheal D Higgins on 27th March 2020. As a result of this legislation, the government has ordered the closure of all non-essential business premises in the interest of public health.

The 2020 Act may have the effect of both landlord and tenants being in breach of their respective obligations in their leases.

For example, if there is a clause in a commercial lease regarding minimum trading hours, many tenants will automatically breach this term in order to comply with government orders. Most leases are tailored for a specific premises and purpose and a tenant will be reluctant to close its doors in order to keep capital coming into the business so that rent can be paid. In addition, unless the lease says otherwise, each party has to comply with all legislation affecting the premises which will include the 2020 Act.

Given the current circumstances, many landlords have already agreed to accept a suspension in lease payments or a reduced lease payment from tenants who have had to temporarily close.

If you are a landlord or a tenant of a commercial lease, then it would be prudent to take the time to review your lease in detail. The below factors should be considered if the premises have been ordered to close due to Covid-19.

Frustration

It may be the case that a tenant of a commercial premises that has been forced to cease operations due to the emergency may not be in a position to re-open so long as the crisis persists, or if the loss suffered throughout the emergency has been too great to reopen at all, thus frustrating the terms of the lease and making it unworkable. On the other hand, if commercial premises are closed by the landlord in the interest of public health, then a tenant may be able to claim frustration of the lease by the failure of the landlord to fulfil its obligations in the lease to provide quiet enjoyment of the premises. It will be a matter for the Courts to consider, on a case by case basis, whether the Covid-19 pandemic will be reason enough to constitute frustration of contract on behalf of either party.

Force Majeure

A force majeure is a legal term that is heard a lot throughout the Covid-19 crisis. It is a clause which allows for a contract to come to an end due to an incident or disaster outside of the reasonable control of both parties. A force majeure clause is not as prevalent in commercial leases, and it is not certain whether Covid-19 would even be considered a force majeure event, again this will be a matter for the Courts.

Rent Suspension Clauses

A rent suspension clause, which is included in most commercial leases, allows for rent due in a lease to be temporarily suspended, however these clauses are most usually in the insurance covenants in the lease and are limited to cases where the premises are damaged or destroyed.

If you or your business need guidance regarding property or rent matters, please contact Nicola Walsh, Partner and Head of Propoerty at 01 644 5800 or [email protected]