Girlings’ Commercial Property expert, David Redgate looks at some of the recent measures that have been introduced to help commercial tenants and the options available when negotiating a new commercial lease in the future.
As a Director of Canterbury Business Improvement District it is heartening to see a semblance of normality return to our once busy city streets. During the crisis I have been actively involved in advising commercial tenants and landlords and I am keenly aware of the challenges they face in the current crisis.
The lockdown has been lifted and the public have returned to shopping in the real world and eating and drinking out and whilst face coverings, have in the minds of many, replaced the need, social distancing still remains. With limited space inside many shops, restaurants and bars have been placing tables outside on the pavement. In the past this required planning permission from the Planning Authority, and if the pavement is a public highway, a licence from the Highway Authority. This has now been simplified to a single pavement licence. Applications are to be made to the Planning Authority and fees vary but are capped at £100. If the local authority does not determine the application before the end of the determination period (which is 5 working days beginning with the first day after the end of the public consultation period, excluding public holidays), the licence is deemed to have been granted for a year (but not beyond 30 September 2021) and the business can place the proposed furniture such as tables and chairs within the area set out in the application for the purpose or purposes proposed.
This is a temporary measure to support businesses while social distancing measures may still be in place. As it is uncertain how long some form of social distancing measures will remain, the new process will stay in place until the end of September 2021. This will give certainty to businesses for the foreseeable future, supporting them to operate safely while social distancing measures are in place.
It will also allow businesses enough time to apply for new licences under Part 7A of the Highways Act 1980 or equivalent provisions in any Local Act, if they want to extend their use of pavement furniture beyond the end of September 2021. If the pavement is not a public highway but privately owned, the applicant will need to obtain a seating licence from the owner of the land, which in most instances will be the tenant’s landlord and the landlord may negotiate a licence fee.
Change of use
A change of use within the same use class does not constitute development and therefore does not require planning permission (article 3(1), UCO 1987). However, alterations to the premises to facilitate the change of use may require planning permission.
On 1 September 2020, the Town and Country Planning (Use Classes) (Amendment) (England) Regulations 2020 (SI 2020/757) (2020 Regulations) came into force and as a result more planning uses now exist in one class thus allowing a property use to change within the now wide use class without requiring planning permission.
Significantly, the 2020 Regulations revoke Parts A (contains use classes A1 to A5 (this includes uses commonly found on the high street including shops, cafes and takeaways) and Part D (contains use classes D1 (Non-residential institutions) and D2 (Assembly and leisure)) and insert new classes E (commercial, business and service).
The introduction of Class E is significant and covers a wide range of uses such as retail, food, financial services, gyms, healthcare, nurseries, offices and light industry. A change of use within the same use class does not constitute development and therefore does not require planning permission.
A change of use or a broadening of the use of a premise can assist traders through the post coronavirus period and beyond. For tenanted property a tenant will still require the landlord’s consent for changing the use even if planning permission is not required.
The vast majority of existing leases do not cover in any way an event such as the coronavirus pandemic which meant that most tenants were obliged to continue paying rent during the lockdown. When negotiating a new lease tenants and landlords have an opportunity to address potential future lockdowns in one of two ways:
More accurately described as a rent suspension clause the clause provides that if the Government imposes a mandatory measure that requires the tenant not to use the rented property for the use permitted by the lease or, where applicable, requires the landlord to prevent or restrict access to the rented property so that the tenant cannot use the rented property for its use permitted by the lease, in these circumstances the rent is suspended. The extent of the clause will be negotiated by the parties on each occasion and generally it will not extend to services charges, insurance or sub-tenancies.
Leases with turnover rent have existed in the retail sector for some time and are particularly popular in shopping malls. The tenant pays the landlord a basic rent which is less than the market rent, and also a turnover rent being a percentage of the tenant’s turnover or sales.
On the face of it a turnover rent lease, during a lockdown, may appear to be a happy medium for the landlord (which receives the basic rent) and the tenant (which is spared the turnover rent). However, the methodology of calculating the turnover rent may not assist the tenant immediately as the turnover during a closed period is substituted for an average turnover (expecting that closed periods are for shop refits rather than due to lockdowns); the turnover rent for the current year is based on turnover figures for the previous year (or estimates in the first year).
However, with the benefit of hindsight, new leases can be drafted to provide that during a lockdown the turnover rent is effectively waived which of course can also be possible for the basic rent.