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The energy crisis will continue to affect the hospitality and leisure sector. As a result of the increase in costs, many businesses have found it difficult to trade and pay their rent following the terms of their lease.
In October, the National Grid released its Winter Outlook Report, which set out a response to the energy crisis in Europe and suggested that there could be planned blackouts across the country to save energy.
Blackouts across the country mean businesses could be without power for hours at a time, which could cause many property litigation issues for a tenant or landlord.
Keep-Open Covenants
A keep open clause within a lease obliges the tenant to keep their premises open for trading during specific hours. These covenants are most commonly found in retail or hospitality.
As there is a potential for blackouts, this causes an issue for landlords and tenants concerning the keep-open covenants in their commercial leases. It is common for a lease to contain a covenant for the tenant to keep their premises open during trade hours; therefore, any blackout situation may result in a breach of the covenant.
If a tenant breaches the keep-open covenant, then landlords could bring a damages claim against the tenant if they suffer a loss due to the tenant’s failure to trade during the hours specified in the lease, or they could seek to forfeit the lease.
Given the increased costs of keeping businesses open during the energy crisis, tenants may wish to reduce their trading hours. If this is the case, the tenant should communicate this to the landlord to see if they can negotiate a compromise that would work for both parties. Any compromise that is reached can be documented in a Deed of Variation.
Services and Outgoings
Businesses may need help to trade with the increased energy costs. When tenants set up their contracts directly with the energy provider, they will have more flexibility and the ability to negotiate a new contract or better rates. However, where the landlord has the contract with the supplier and then seeks to recover the energy cost from the tenant, tenants have very little ability to do anything about the increased costs.
Tenants will need to be aware that non-payment of these sums will likely constitute a breach of the lease terms, and the landlord could seek to recover these costs by way of Court proceedings or even forfeiting the lease.
If, as a tenant, you are in arrears, you should liaise with your landlord to see if a payment plan or agreement can be reached that allows you to pay the arrears over time.
Repair
During this period of uncertainty and with the rise in the cost of materials, cash flow may be restricted for both landlords and tenants, and therefore there is a risk that properties can fall into disrepair.
Depending upon who is responsible for keeping the property in repair, the landlord or tenant could breach their covenants.
Tenants must know that at the end of the lease, they could have large dilapidations claim against them if they fail to comply with their repairing obligations. On the other hand, landlords may want to consider what remedies they have to ensure the property is repaired during the lease term.
Rights
Tenants with mutual rights to use services may find that if there are any blackout periods, they cannot use equipment such as lifts, escalators and utilities.
Tenants should ask landlords about their backup plans if this happens to minimise any disruption to their business.
Insurance
A tenant is often required under the lease to ensure that their property is insured.
A tenant should ensure their property is fully insured during a blackout situation.