Alternative arrangements for conditional break options
COVID-19 has implications for a few areas of the landlord-tenant relationship, which we’ll explore over the next articles. For the first, we ask: where do site closures leave tenants who have to carry out construction works in order to satisfy a conditional break option?
It is not uncommon for tenants to have to provide ‘vacant possession’, to comply materially with all obligations or to complete other specified works; either by the purported break date or (sometimes) when the break notice is served on the landlord.
In circumstances where construction activities are restricted by covid-19, where does this leave a tenant who is now unable to carry out that construction work?
It is worth checking whether the construction activity really is restricted. For example, the tenant might be an NHS entity and complying with the break might save the NHS significant funds; does that make it ‘essential’ work? At the time of writing, UK government guidance appears to be that construction activities can continue so long as social distancing is maintained, whereas the Scottish government has indicated that all construction activities should cease. Some contractors have unilaterally taken the decision to pause work (the contractual implications of which is another matter).
Where these break option cases have made it as far as court, judges have been very rigid in their requirement that a tenant has to comply with its obligations precisely. That doesn’t bode well for tenants who find they are unable to comply with their obligations.
The usual approach for tenants has been, prior to starting their construction works, to engage with their landlords to try to negotiate an exit from the premises without having to comply with the break option conditions. It is generally accepted that the landlord has the upper hand in these negotiations; presumably if a landlord knows that a tenant has no opportunity now to comply with its break option conditions, the landlord’s negotiating position improves substantially.
All things being equal one has to expect that landlords will not be keen on their tenants moving out just when rents are not being paid, when the future market might be weaker and when tenants are perhaps less likely to want to renew.
Maybe there is an opportunity for landlord and tenants to be collaborative; if complying with the break option conditions isn’t possible it might be possible to agree a different way round things – maybe joint marketing of the space until such time as a suitable new tenant appears, at which point the departing tenant is allowed to surrender the lease.
Whatever happens, the implications of COVID-19 will have changed the landscape for many considering exercising break options.
We offer advice to help parties involved in this or similar situations come to an amicable solution, even in the midst of disruption.