Can you really enforce keep open covenants?
Keep open covenants can offer significant benefits to landlords, but given how hard they are to enforce, is it worth it? Let’s find out more.
Keep open covenants are a hot topic in commercial property right now. They’re supposed to benefit landlords, but in reality, they’re difficult to enforce because they can place an unduly high burden on the tenant.
In this article, we’ll examine keep open covenants in more detail – what they are, why they exist and why they’re such a challenge to rely on in court.
What are keep open covenants?
A keep open covenant is a clause in a commercial property lease that requires the tenant to keep their premises open for business during specific times. These periods are usually the standard working hours (all day Mondays to Saturdays and a slightly shorter time on Sundays and public holidays). If the property in question is a shopping centre, the hours will typically be when the centre is open.
There are often exceptions to keep open covenants where the tenant can be exempt from their obligations to stay open. These may include:
Maintenance (assuming the landlord’s consent)
Periods before assigning or subletting the premises
Staff training
Where staying open could contravene another clause on the lease or a government regulation (e.g. closure due to COVID-19 laws)
Landlords may incorporate options in the clause to adjust the periods, provided they act reasonably when they do it.
Benefits for landlords
There are two reasons commercial property landlords may want to incorporate keep open covenants in their leases.
Firstly, in retail properties, capacity drives footfall and vice versa. Landlords know customers won’t want to visit their centre if it’s full of unopen shops, so they use keep open covenants to ensure capacity. It’s hoped that tenants will be happy to open as they know there will be customers ready to come in and make purchases.
The other benefit relates to revenue. Landlords often use keep open covenants when the tenants are on turnover rent contract. This means that the rent they pay is (at least partially) determined by the revenue it generates on its premises. As there is a direct correlation between the landlord’s income and the success of the tenant, the landlord will use a keep open covenant to ensure the tenant maximises their revenue.
A landlord may also use a keep open covenant for their ‘anchor tenants’ – the big-name, prestigious retail brands that attract customers and retail tenants to the centre.
Challenges in practice
While keep open covenants can be highly beneficial for landlords, they are hard to enforce in reality. If a tenant breaches their keep open covenant, the landlord has three options for redress, but each has its own obstacles:
Damages – Landlords seeking damages from their tenants must be able to prove a loss, which is tricky unless the tenant is an anchor tenant
Injunction – Public policy reasons make it unlikely for a court to award an injunction. It’s not good optics to force a business to operate at a loss
Forfeiture – This can backfire on the landlord if they can’t re-let the premises quickly
So, if you have a tenant in breach of their keep open covenant, what can you do?
Talk to your solicitor
If you’re a commercial landlord looking to incorporate keep open covenants into your leases, make alterations to existing keep open covenants or deal with a tenant in breach, your best course of action is to talk to an experienced commercial property solicitor straight away.
Your solicitor will examine your contracts, explain your options and, if necessary, take legal action in your interests. Don’t try and do everything yourself, get an expert in your corner.
Find out more from Couchman Hanson
At Couchman Hanson, our solicitors genuinely care about getting the best outcome for you. We’re highly professional, with ‘city’ level talent and experience, but also friendly and welcoming. Everything we do fits with our values of integrity, honesty and authenticity.
Call 01428 774756 or visit couchmanhanson.co.uk.