UK & Europe
In a recent lease renewal claim in the County Court, a judge has declined to award a tenant a “pandemic clause” finding that the tenant had not satisfied the test for inserting a new clause into the renewal lease. This might seem like bad news for tenants, but is it?
So called, “Pandemic Clauses” which allow for rent to be reduced in circumstances where premises are closed due to government regulation have become a frequent drafting request from tenants during the COVID-19 pandemic.
The recent and much publicised W H Smith – Westfield lease renewal case dealt with the tenants requested Pandemic Clause – but in circumstances where the principal of the clause was agreed – just not its operation.
In this case, the question of whether or not the clause should be included was not agreed – and it was for the court to decide.
When a party wants to add a new term into a renewal lease that was not there before, the onus is on that party to show why it is appropriate for the new terms to be added. Evidence to prove this might include, for example, expert evidence showing that such terms were common in the market place.
Despite having a good deal of expert evidence in front of him, the judge (in his decision) did not really comment on the evidence, but came to the view that the tenant had not satisfied the court of the need for the new clause.
The judge formed the view that to allow for rent to be reduced in a pandemic was a major shift in the relative commercial positions of the parties to the lease and was not justified. The judge relied heavily on the fact that the government, when announcing restrictions, had also made provision for assistance to tenants. It was to those measures, which presumably would come again, that the tenant should look in a future pandemic – not a new lease clause.
Is that now the end of the matter? Are Pandemic Clauses now consigned to the dustbin?
First, this was a County Court decision and is not binding authority. Another County Court (or higher) judge could come to a different conclusion.
Second, a close reading of the judgment gives some clue that, perhaps, the issue was not one which greatly interested the parties.
Its clear from the judgment that the matter was set down for a full trial – but that just before trial the parties agreed the commercial terms of a new deal. There were some few points about lease drafting (like the Pandemic Clause) which were not decided, and the parties had agreed that the judge could still decide those points.
Tellingly, the rent was agreed, and the rent would be the same whatever the judge decided on the questions of drafting still before him. Also, the parties had agreed as part of their deal that each party would bear their own costs of the claim.
This tends to suggest that the remaining issues were not of great importance to the parties and may well have not been pursued with utmost vigour.
We can expect there to be more cases to come where the issue of a Pandemic Clause really matters to the parties and it will be interesting to see if there is a different outcome.
What we have said in recent articles bears repeating – in lease renewals post pandemic – real world evidence of the local market place is going to be key. Expert evidence and good comparables have never mattered more.