Coronavirus: How does coronavirus affect serviced office agreements?

Unlike occupying premises pursuant to a traditional lease model, an increasing number of businesses use serviced offices. With the number of providers rising over the past few years with the arrival of US giants such as WeWork, the supply in the UK has gone up sharply.

Considered to be more flexible than leases, there are other interesting differences which may have a marked impact on the respective parties’ obligations in light of the COVID-19 pandemic.

A serviced office agreement is usually simply a commercial contract – a contractual arrangement for the provision of services. An occupier does not have “an interest in land” as it would have had it been granted a lease and accordingly, the usual laws of contract apply, meaning there may be scope for arguing that the contract has been frustrated and come to an end or that the parties “obligations”, including for example to pay rent, may be altered.

In particular, in the event that the occupier cannot access the offices which have been closed or, alternatively, it cannot occupy the offices in accordance with the statutory regulations concerning social distancing, it may be possible to claim that the contract has been frustrated. Frustration applies where something has occurred after the contract was entered into which makes it impossible to perform the contract or renders performance radically different from what was originally agreed. The frustrating event must be so fundamental that it strikes at the root of the contract and is entirely beyond what was contemplated when the parties entered into the contract.

In those circumstances, English law may treat the contract as frustrated, the occupier would no longer be responsible for continuing to pay the monthly fees and the contract would be considered to be at an end.

Other terms to look out for are what are known as force majeure clauses. Such a clause may excuse compliance with contractual obligations in the event of an event happening outside the control of the parties. Particular consideration should be given where such a clause is drafted to excuse one party only, particularly where that parties’ standard terms and conditions are being relied upon. Such a clause may be unenforceable as it is unreasonable and gives weight to an argument that the clause should be extended to both parties. Potentially therefore this may result in the occupier not having to pay for its use of the offices during the period of the force majeure event.

Occupiers will need to carefully check the terms of their contracts but should not be put off by arguments that this was an unforeseen, extraordinary event and will not impact on the parties’ respective obligations. At the very least there may well be enough to argue about to result in improved terms being agreed for the period of lockdown.

If you have any questions relating to your business occupation, please contact Alison Moore using the details below.