Coronaproof office rental agreement: the pandemic clause

As a result of the corona crisis, tenants, and therefore landlords as well, have ended up financially in bad weather. Particularly in the hospitality and retail sectors. Many tenants wish to receive a rent discount or even to terminate the contract prematurely. In quite a number of cases it is 'do or die'. At the moment it is still uncertain for which solution the court will choose in cases where the tenant and landlord can't come to a solution themselves.

The office space market

In the office market it seems to be even quieter. This is understandable because the market is much broader in terms of rent. This includes, for example, government offices, hospitals, law firms, estate agents, travel agencies, parcel delivery companies and internet shops.On the one hand, this category consists of companies that just keep going or even benefit from this crisis. On the other hand, there are also companies that suffer from this situation like no other. Think in particular of travel agencies.

Pandemic clause

Meanwhile, the world is getting back on track and fortunately there are also parties in discussion with each other to conclude new contracts. The question that arises is whether a contract can include such an arrangement that offers those involved a solution in the event of a pandemic. After all, prior to the conclusion of a contract, the parties have a more open mind towards each other than when there is already a potential dispute. If a situation of force majeure actually arises, the parties know where they stand and are not left to the uncertainty of a court ruling.

Benefits of a pandemic clause for landlords

Why would a landlord go along with that? What's his interest? In the first place, in a competitive market, such an arrangement gives the potential tenant comfort, which may make him willing to pay a higher price per square metre. Secondly, when the contract has been properly arranged how the parties should deal with such a calamity, there is less room for the courts to look outside the contract. Think of reasonableness and fairness, imprévision, etc. As already mentioned, the latter can lead to unpredictable and arbitrary outcomes. Apart from the fact that this often involves a long period of uncertainty. Before the judge has spoken, the parties are often months further on.

Pandemic clause for offices are tailor-made

A 'pandemic clause', containing an interim termination option and/or rent reduction or rent suspension, could offer a solution for the issue. The challenge is to formulate the clause in such a way that it is 'abuse-proof'. Formulating such a clause is tailor-made. There is quite a difference between the consequences of a pandemic for a government institution or for a travel agency. Before a pandemic clause is included, the question must first be answered whether the tenant's activities will suffer a pandemic and, if so, to what extent. If the lessor does not carry out this test and 'blindly' includes a standard clause, there is a risk that a tenant who has no or little trouble with a crisis will use this clause (or abuse it) to break open the contract.

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How can this be resolved? There are several conceivable ways of doing this. If the tenant performs commercial activities, the turnover can be used as a benchmark. Since parties (especially the landlord and his financiers) rarely need a pure turnover rent, further (external) requirements would also have to be linked to this. For example, an assessment could be made on the basis of a closure of certain activities by the public authorities, or a minimum period of time during which a lockdown for certain activities continues. Of course, many variants and/or additions are possible.

In any case, it can be concluded that the specific situation of each tenant will have to be taken into account. The above article is a joint venture between Flexas.com and Boers Advocaten in Veenendaal.