As Ireland continues to operate under its third Covid-19 lockdown, it is clear that we are all going to have to live with the effects of Covid-19 for some time. While essential retail outlets are permitted to remain open with public health measures in place, non-essential retail is required to remain closed under the current level 5 restrictions. This forced closure clearly has the potential for a very detrimental effect on a retail business.
Nevertheless, businesses are continuing to trade as best they can and in certain instances this may involve entering into new commercial retail leases. Clearly any such lease negotiations should take account of the potential for such ongoing public health restrictions. As a tenant, this may mean, amongst other things, considering the need for:
- suspensions or deferrals of the rent payment obligation for the duration of any period that they cannot trade;
- discussing the merits of turnover based rent payment clauses rather than fixed rental amount obligations and rent review clauses to take account of the effects of Covid-19;
- pandemic related early break options;
- seeking to agree monthly rent payment obligations rather that the more typical quarterly obligations to aid cash flow;
- extensions of the agreed time period to carry out initial fit-out works to the premises; and
- suspensions of any keep-open covenant in the lease when closures are required.
However, as a landlord will most likely have its own financial obligations to meet, they may in particular be reluctant or unable to agree to such upfront concessions regarding the rent when there is no certainty around how long any such concessions may last. If a landlord does agree to any such concessions, they will likely take the form of concessions contained in side letters outside of the main lease for greater confidentiality and to reduce the risk of creating a wider precedent for future lease negotiations.
It is advisable that all parties consider and discuss these issues at an early stage of negotiations so they can reach an acceptable agreement.