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The County Court has refused to include a ‘Covid clause’ in a 1954 Act lease renewal: Poundland Limited v Toplain limited [2021] (unreported).

The case involved a dispute between landlord and tenant over lease terms during the statutory renewal of a commercial lease. Whilst the parties were in agreement over most terms, the landlord would not agree to the tenant’s request for a ‘Covid clause’ in the new lease. The ‘use prevention measure’ clause, as proposed by the tenant, would reduce annual rent by 50% in the event of a lockdown period cause by the Covid-19 pandemic.

Lease renewal

Renewing a lease is distinct from creating an agreement from scratch. Therefore, the terms of a renewed lease will usually replicate the existing ones, and there are rules to follow when considering changes to rent and term length. Following O’May v City of London Real Property Co Ltd [1983] 2 AC 726, changes to the terms of a lease can be made where it is fair and reasonable to do so, and reasonable modernisation is required.

When terms of the lease renewal are in disagreement, the Courts will also give consideration to the tenant’s negotiating position, the tenant’s business and security, and the possibility of compensation for the objecting party.

The argument for a Covid clause

The tenants argued that introducing the Covid clause would be modernisation, taking into account the ongoing pandemic.

They also argued that, if they were unable to trade due to a lockdown and became unable to pay the rent, it would cause a risk to the landlord, therefore the clause was in both parties’ interest. The tenants referred to similar clauses agreed between landlords and tenants, relying on WH Smith retail Holdings Ltd v Commerz Real Investmentgesellshaft MBH (unreported).

In opposition, the landlord argued that the inclusion of the clause would fundamentally change the parties’ relationship, and that there was no market precedent on incorporating such clauses. They also argued that the tenants could take advantage of Government reliefs, should a lockdown occur, and trade be impacted.

The judgement

The Court found in favour of the landlord and refused to introduce the Covid clause.

In relation to the WH Smith case, the Judge stated that this was distinguishable, as it concerned the mechanics of a provision already agreed by the parties, rather than deciding upon the substantive clause.

The Judge held that the purpose of renewing the lease under the 1954 Act, is to enable the tenant to continue operating the business from the premises when the lease has come to an end, not to “redesign previously negotiated risks”. They also said that including a Covid clause would impose a risk on the landlord and such variation from the existing lease was not fair and reasonable, particularly as the tenant may have Government reliefs available to them.

If you would like to discuss the incorporation of Coronavirus related clauses in your leases or contracts, please get in touch and our team can advise you. You can also visit our Covid-19 Info Hub for more information related to the ongoing pandemic.