If your business is within a shopping centre or district, you may want to check the small print of your lease. Leases of many shops and restaurants can contain an obligation on the tenant to keep their premises open during defined ‘trading hours’: this is called a ‘keep open’ covenant.
Landlords may insist on these covenants, especially in leases of shopping centre units or on buzzing high streets. By ensuring their let units are open during core hours, landlords seek to maximise footfall and the profitability of the centre or district, protecting the goodwill in the shop and the associated rental level.
This is an onerous obligation, especially for small businesses whose obligation to find cover during a period of staff shortage or during holiday absence can be difficult.
What is a ‘keep open’ covenant?
Most keep open covenants will require the tenant to be open Monday to Saturday, except on bank and public holidays. Sundays may be excluded too, or more limited hours may apply. Tenants should check their leases for the hours they are obliged to be open.
Christmas Day and Boxing Day are bank holidays, so should be excluded from the covenant. With Christmas Day falling on a Monday this year, 27-31 December will count as ‘normal’ days in the majority of ‘keep open’ covenants and therefore affected tenants may be obliged to be open during the times on those days required under the covenant.
A keep open covenant will usually allow the tenant not to open during periods when it is carrying out works to the property, getting ready to assign the lease or when it ends, if prevented to from damage to the property, or where it is illegal to open (e.g. lockdown).
If a tenant breaches a keep open covenant, what action can a landlord take?
Interestingly, a court will not grant an injunction forcing the tenant to open. Case law has held that this is as undesirable due to the constant supervision that would be required by the court to enforce it. It is also not seen to be in the public interest to force a tenant to potentially carry on a business at a loss.
A landlord could serve notice on the tenant requiring it to remedy the breach of covenant by reopening the business. If the tenant fails to do so within a reasonable time, the landlord may be able to forfeit the lease. This is perhaps unlikely to apply if a tenant closes only for a day or two between Christmas and New Year. A tenant may also well be able to apply for relief from forfeiture if it undertakes to reopen.
The landlord may be able to claim damages from the tenant if it can prove it has suffered a loss as a result of the failure to open – for example if the value of its own interest has been diminished as a result of the breach. Again, this might be hard to prove if the tenant has only closed for a day or two.
In summary, the remedies may be a bit toothless for a brief period of closure over the Christmas period. However, getting on the wrong side of your landlord may be inadvisable, especially during a time of rent inflation, so if you need to close during the period, perhaps discuss with your landlord first. For practical advice about any aspect of commercial property and commercial leases, our Commercial Property team will be happy to help.