Rachel Rodgers: The pandemic has changed the world – or has it?
Rachel Rodgers, partner at Walkers, considers the impact of the Covid-19 pandemic on agreements between landlords and tenants.
There is no doubt that as a consequence of the pandemic, the way we work and live has changed. Our attitudes, our priorities – they have all shifted slightly. They say the days of people working in the office are over, commentators speak of people moving west to work remotely, of hotels being repurposed, of the retail experience fundamentally changing.
So yes, the world has changed – but the hard truth is that the pandemic cannot change the world retrospectively. Meaning, if you agreed to something in 2018, you cannot necessarily get out of the agreement because, in 2020, the rug was pulled out from under all of us.
This position is becoming very apparent in the world of property as slowly, disputes – in particular between landlords and tenants on the interpretation of leases – are finding their way through the courts. The rules around interpretation of contracts have been examined and the consistent takeaway from recent judgments is that the words in a contract must be given their literal meaning.
If both sides signed up to an agreement without duress or undue influence, then they must live by those terms. A global pandemic, no matter how unfair it may seem, is not a reason to interpret agreements differently, or to imply that terms exist in an agreement when clearly they were not anticipated when the parties signed on the dotted line.
It is not commonplace for commercial leases to contain force majeure clauses that would allow the parties to exit the agreement following a force majeure event. Nor is it commonplace in commercial leases for rent and service charge to be suspended in any circumstances other than those where the premises have been destroyed.
It is hard not to have sympathy for both landlord and tenant in these circumstances – the tenant who has not been able to carry on their normal business and the landlord who made an investment in the hope of a return and is possibly answerable to a funder. But nevertheless, the lease is the lease and so the terms must be honoured and strictly interpreted if the parties cannot agree to some kind of compromise between themselves.
On 1 October 2020, the Irish Department of Business, Enterprise and Innovation published a voluntary “Code of Conduct between Landlords and Tenants for Commercial Rents”. The code encouraged landlords and tenants affected by Covid to engage with one another and reach a compromise on rents. It also states that the Code should be reserved for those who are in financial straits as a consequence of the pandemic.
Even before the Code was introduced last October, we saw a high level of engagement between landlords and tenants and property managers on rents as each side tried to attain some kind of certainty in relation to property. However, it is not always possible to reach an agreement (due to unreasonableness on either side or due to the fact that third parties such as banks will not get on board) and, in certain situations, court will be inevitable.
As a consequence of the pandemic, lease agreements are changing to an extent. We are seeing more creativity on the part of landlord and tenant. For example, pandemic clauses are being agreed to allow for rent suspensions in the event of future pandemics. Obviously, the ability to agree such terms will depend on the parties and their respective obligations to third parties, but in the market, it would be remiss for a tenant’s solicitor not to ask for it, even if it has to be refused.
While litigation may be inevitable in certain circumstances where the parties are at an impasse, it is important for both sides to know what the underlying agreement says and to remember, that even though the pandemic changed the world for all of us, it didn’t change the text on the page. Legal obligations are not diluted by a pandemic unless the legal agreement (or a statutory intervention) says they can be.