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Legal
Have you updated your Can a periodic business tenant commercial contract in occupation of premises obtain terms after Covid 19? a lease from their landlord?
Why the small print matters. You are a commercial tenant running a business from premi ses and you now want your landlord to grant you Review your standard contracts or T&Cs The way in which we do business has changed as a result of the pandemic, and businesses need to ensure that they have adapted their trading terms to fit the ‘new normal’. It is important to review your standard business contracts or terms and conditions (T&Cs) in order to minimise the future effects of a pandemic or events beyond your control. Most businesses will have standard boilerplate T&Cs which may have been in place for years, but it is advisable to review these to take into account how major intervening events could frustrate contracts, for example governmental interference, pandemics, natural disasters, and other supervening events. Force majeure clauses are important While there is a common law doctrine of frustration which may apply where an unforeseen event has made a contract impossible of performance, the doctrine is very difficult to establish and has been construed very narrowly by the Courts. So businesses need to rely upon specially designed force majeure clauses in their contract terms. They are important because they make provision on the happening of a specified • Cancellation of the contract either automatically or at the request of one of the parties. • Excusing the performing party from further performance of the contract in whole or in part. • Suspending performance of granting an extension of time for future performance. The drafting is important since it will be strictly construed by the courts when deciding upon the rights and obligations of the parties. Careful attention needs to be given to various definitions including ‘pandemic’ or ‘epidemic’ using a definition that is generally accepted eg the definition adopted by the World Health Organisation which would be accepted in international contracts or where a party is reliant upon a supply from abroad. Even the definition of ‘force majeure’ needs to be examined since the long established definition of an event that ‘could not have been reasonably anticipated or avoided’ would not now cover a pandemic which was already known when the contract was entered into. Is a force majeure clause enforceable in a BtoC contract because of Covid 19? There are statutory provisions imposed upon businesses seeking to rely on force majeure provisions in contracts with consumers relating to delays in performance caused In particular, businesses must consider whether: • the contract terms have been effectively incorporated into the contract, according to common law principles. You must show that the other party specifically agreed to, or knew of, the terms before formation of the contract; and • the terms are fair, as determined in accordance with the Consumer Rights Act 2015. Fairness test Terms in B2C contracts and to a lesser degree in B2B contracts, are subject to the unfair terms provisions set out in CRA 2015. A term or notice is unfair if, contrary to the requirement of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer. Terms which do not satisfy the fairness test are unenforceable against consumers. The Competition and Markets Authority (CMA) published guidance on unfair contract terms entitled ‘Unfair contract terms: CMA37’ (CMA Guidance). This includes guidance on the grey list and other potentially unfair terms and notices. Annex A of the CMA Guidance You mayhave been paying rent monthlyorquarterlyforsome years, butyourlandlord has still notgiven you a fixed term lease. Whatcan you do to force the landlord’s hand? Rightsunderaperiodic tenancy Itis likelythatyou are a periodic tenantand ifyou have been in occupation ofbusiness premises paying rentformore than 12 months, you will have become a protected business ten antwith the rights granted bythe Landlord &TenantAct1954 Part11. As such the landlord cannot simplyterminate yourlease by giving you one month’s notice. Itwould need to serve you with a statutorynotice underthe 1954 Actgiving you notless than 6 nor more than 12 months’notice and you will then have the rightto applyto the courtfora newlease on terms to be agreed ordecided upon bythe co urt. Canyourequirethe landlordtograntanew lease? lease, perhaps in orderto grow orsell yourbusiness, you will not be able to serve on the landlord a notice undersection 26 ofthe 1954 Actrequesting a newlease. The rightto do this onlyapplies to tenants whose tenancywas granted fora fixed term certain exceeding one yearorfora ny term and thereafterfrom year to year. So whatshould the tenantdo? Negotiatewithyour landlord Aperiodic protected tenantshould be in a strong position to negotiate a newlease with the landlord who would be keen to regularise the position. Withouta lease, the landlord cannotunilaterally increase the rent, orregulate the use ofthe premises orprevent the tenantfrom sharing occupation orassigning its tenancy. Itis unlikelythatthe landlord could easilysell its interestin the propertywhile a protected periodic tenant contiuues in occupation foran indefinite period. With oral tenancyagreements if resolve the dispute which could be unsatisfactoryto both parties and the uncertaintlyofa courtcase could be avoided byagreeing up on lease terms. One wayin which the landlord can regularise the position is to serve a written notice under section 25 ofthe 1954 Act terminating the tenancyand stating whetherornotthe landlord is willing to granta newlease and ifso on whatterms including rent and length oflease. Ifthe landlord opposes the grant ofa newlease, then itmayonly refuse on certain grounds setout in the statute, m ostcommonly refusal on the grounds of persistentrentarrears, being able to demonstrate an intention to occupythe premises forits own use oran intention to redevelop. The landlord mustdemonstrate the abilityto do these things if necessarybyproducing plans and specifications and the necessary planning permissions. This can make itdifficultfora landlord to regain possession. Ifthe tenantis a prot ected a newlease, the tenantwill be able to obtain a newlease on terms to be agreed orifnot agreed as determined bythe court. Accordinglythe landlord cannotsimplyimpose anyterms itwishes and the courtwill look atthe implied terms ofthe periodic tenancywhen considering what terms should be inserted in the newlease. The landlord is therefore likelyto be agreeable to granta lease to a periodic tenantespeciallysince itcannotincrease the rentwithout firstterminating the lease under the Act, and the position will remain uncertain. Takinglegal advice Itis bestto seeklegal advice first before finalising terms in principle with yourlandlord to ensure that the terms ofthe newlease are not onerous and reflectthe terms of youre xisting oral tenancy. Where there is a dispute with the landlord and the landlord is taking steps to terminate the tenancywithout offering acceptable newlease terms, itwill be importantto seek a written lease for a fixed term. event or event beyond the control of the Ifthe time has come thatyou a dispute ari by Covid 19, or to relieve them of their ses the courtwould business tenantand the la provides illustrative examples of wording ndlord legal advice as to yourrights and parties including:- need the certaintyofa fixed term need to hear contractual obligations. evidence and tryto does nothave grounds to which may regarded as unfair by the CMA. oppose howto protectyourposition. Ifyou ne If you need expert legal advice, please contact Alan Zeffertt ed expertlegal advice,pleasecontactAlan Zefferttbyemail on a by email on ze@anthonygold.co.uk aze@anthonygold.co.uk oraskforhim ora membe or a member of our rofourCommercial Commercial Team on 020 7940 4060. PropertyTeam,telephone02079404000.
AnthonyGoldSolicitorsspecialiseinmanydifferentareasoflaw Oursolicitorsareexpertsintheirfields.Wearenegotiatorsandlitigators, committedtodoingwhateverisbestforourclients.
