Covid-19 – a few important considerations for tenants

The spread of the Coronavirus now affects all parts of society. Businesses must review their operations to minimize the negative consequences that may follow. At the same time, it is important to be aware of the legal consequences that may arise from risk minimization. Below is a general summary of some issues that can arise for tenants in commercial premises.

If the tenant, on its own initiative, is forced to shut its business conducted on the premises, the tenant is not entitled to any rent reduction or other compensation, unless otherwise agreed between the tenant and the landlord.

This means the tenant is obliged to pay rent as usual – even if restaurant patrons and customers stop coming in. Should the tenant’s rental payment be more than two working days overdue, the tenancy will be forfeited, and the landlord will be entitled to terminate the lease early, unless the tenant rectifies this (i.e. pays the rent) before the landlord terminates the lease. If the lease is terminated due to forfeiture, the landlord is entitled to damages from the tenant.

If the tenant temporarily closes its business – such as a restaurant or a shop – it is important to first verify whether the tenant has any special obligations in relation to keeping the business open, such as during specified times. Such clauses are particularly common in leases linked to malls/shopping centers. Where such undertakings are in place between the parties, the tenant may cause a breach of contract by shuttering its doors, meaning that the landlord may have the right to forfeit the lease and demand early termination. That said, an assessment of the tenant’s risk of having its tenancy forfeited must always be made in the particular case at hand.

If the tenant wishes to change the focus of its business, it is important that the new business focus falls within the scope of what has been agreed on the use of the premises in the lease – such as a shop or restaurant. Generally, a tenant is not entitled to change the use of the premises without the prior consent of the landlord. Should the tenant use the premises in breach of agreement and fail to rectify this without delay after having received a notification of breach from the landlord, the landlord may have the right to forfeit the lease and demand an early termination.

Finally, in times of crisis, there is often a common desire to weather the storm, regardless of the legal assessments made in a particular case at hand. Given the current extraordinary situation, there is much to gain if the contracting parties, where needed, engage in a dialogue with each other in order to facilitate the ability to quickly resolve simpler issues and avoid future disputes.