3 April, 2020

The end of a lease and a move to new property is challenging in normal times.  The disruption caused by the virus has added much more complexity and uncertainty.  If your lease is due to expire or you have a break coming up in the next 18 months it’s time to reconsider your strategy.

My programme has been torn up, now what?

Lock down means your building contractor may not be able to finish fitting out your new property in time for you to relocate before your lease expires.  What about your dilapidations liability? How will you have time to resolve this?

It’s important to start by considering the lease terms and property in detail. With dilapidations the detail can make all the difference.  As long as you’re not exercising an option to break it should always be possible to agree a financial settlement of your dilapidations liabilities, allowing you to remain in occupation right up to the last day.

However, to have any leverage in this negotiation with your landlord, there are time critical actions you should think about taking.  The first one is to take expert advice. 

If the relocation programme is simply not achievable, then what?

Leases run for a defined period and whilst most anticipate that occupation might be prevented by damage or destruction, (a situation usually covered by insurance), there won’t be any automatic right to extend the lease term because occupation is prevented by a pandemic. If there is no alternative than staying, you might already have rights for continued occupation under the Landlord and Tenant Act 1954, but this will depend on the type of lease you have and the timely service of notices.

You will want to find out if the landlord will agree to an extension, but is that the most economic option?  You might, where possible, continue to ask your business to work from home or consider a temporary move. Flex office solutions would work in this situation as you would not be obliged to enter into a long-term commitment on space, particularly if you are exiting by means of a conditional break option.  If extending the lease is the preferred route, you may find that landlords are more than likely to consider this in the current climate as they face the less appealing prospect of an empty building they can’t refurbish or re-let once you’ve gone. 

If I don’t achieve my break, am I stuck with the lease?

Break options often come with conditions attached, so are likely to present a much greater challenge. Typical break conditions include providing vacant possession or completing dilapidations work before the break date. If the conditions are not met the break isn’t effective and the lease continues.  Your contractor may be entitled to claim force majeure because it can’t complete its work for you, but break options are strictly upheld by the courts, and landlords are entitled to demand that the conditions are met.  The risk of failing to satisfy these obligations sits firmly with the tenant.  We don’t believe the current lock down can be relied on as a legal argument without being tested through litigation or dispute resolution.  Whether the tenant can break the lease successfully will depend on the nature of the conditions, but if they are not met then in all likelihood the lease will continue, unless the landlord is willing to waive its legal rights.

Is my dilapidations and exit budget still right?

Whilst dilapidations liabilities flow from the cost of remedying disrepair and carrying out the necessary reinstatement, the basis of determining the amount of damages owed to the landlord is also dictated by the market for the property and what the landlord does with it at lease expiry. Landlord’s plans for redevelopment or major refurbishment may now be postponed and this can increase potential dilapidations liabilities significantly. Similarly, Section 18 and value diminution assessments may be dramatically different for properties in certain markets. If a property is located close to an airport, for example, the loss suffered by the landlord may be very limited now, as there could be little demand for buildings in this location.  This degree of market volatility means that dilapidations liabilities need to be revisited as a priority because they’re unlikely to be the same as they were two months ago. 

Despite the lock down we are still able to help you meet these challenges and navigate lease exits successfully ensuring risks and costs are both mitigated.