Does Force Majeure apply to the leasing of commercial property?
Some commercial tenants have queried whether the current situation is a force majeure which may allow it to terminate the lease. Clauses which allow a party to terminate a lease for a force majeure event or, to put it another way, an “act of God”, are however extremely rare in modern commercial leases. Even if there is such a provision in your lease, it would need to be drafted to apply to an outbreak of disease.
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In practice this means that any risk assessment will need to be reviewed constantly and adjusted as our understanding of the nature and level of the risk grows.
Some service-providers are instigating special Oversight Groups to keep this issue under review but engagement and consultation with those affected is critical and making sure they feel confident to raise concerns and refuse to work if they believe they are not safe.
In the event that the contractor is displaying one or more of the above signs, then it is worth considering the following actions to protect the employer’s position as far as possible:
- Closely monitor the financial and on-site performance of the contractor in order to assess the likelihood and timing of potential insolvency
- Ensure all bonds, guarantees and collateral warranties have been obtained under the building contract, and if not take steps to obtain them immediately
- Consider the terms of any guarantees to ensure that the guarantor’s obligations are not inadvertently discharged
- Bonds may require adjudication to have been commenced (or even completed) prior to insolvency so as not to be stayed pursuant to insolvency laws
- Carry out an audit of the on-site plant, equipment and materials, and evidence this (for example with photographs and written records)
- Ensure that copies of all relevant documentation have been obtained, for example drawings, specifications and anything required to comply with CDM requirements. If not, take steps to obtain these
- Review the payment position under the building contract, including whether any over payments have been made to the contractor which should be reclaimed, what retention is held or has been released, whether any payment notices may be necessary, and whether there are rights of set-off which should be exercised
- Check whether the involvement of any third party is required, for example funders, landlords, tenants or purchasers who may have rights in relation to the building contract and how it is administered
- Review the terms of the building contract relating to contractor insolvency – hopefully the parties will be fully aware of the building contract terms and have been administering it correctly to date, but if it has been hiding in a draw then now would be a good time to dust it off and ensure familiarity with the relevant provisions!
In general. there is often a stick or twist decision. If the employer chooses to financially support the contractor (for example by agreeing different payment arrangements), this may help to keep the contractor solvent and more likely to complete the project, but it also exposes the employer to greater risk if the approach is not successful. Conversely, withholding payments from the contractor may make insolvency a self-fulfilling prophecy. The precise advantages and disadvantages of the approach will be dependent on the specific circumstances of each case.
The fundamentals of risk assessment remain the same as for any other foreseeable risk.
Focus on risk controls which reflect Government guidance; social distancing (2 metres) and avoiding contact with occupiers if possible, high-quality PPE – disposable overalls, gloves and fluid repellent surgical face masks, ready access to antibacterial wipes for surfaces, tools and equipment and plentiful hand sanitizer.
£370 million will be available to support small and medium-sized charities who are at the heart of local communities and which are making a big difference during the outbreak, including those delivering food, essential medicines and providing financial advice. These monies will be distributed by organisations including the National Lottery Community Fund for those in England. It is understood these monies will need to be applied for. The application system for the National Lottery Community Fund grant pot is expected to be operational within a period of weeks.
Those who are eligible will be contacted directly by HMRC based on tax returns they have received. If you are eligible you will be asked to fill out an online application. HMRC will pay applicants directly.