Ascertain the nature of insurance policies that you have in place which could, in principle, cover business interruption, supply chain and other losses (including third party claims or losses incurred as a result of disrupted or cancelled business travel) arising from COVID-19.
In particular, check whether you have cover for COVID-19 related losses arising from (but not limited to):
- action of competent authorities
- infectious diseases
- loss of attraction and/or
- prevention of access
Any of these additional covers could, in principle, provide grounds to claim against your insurance, subject to the specific terms of the policies.
Landlord and tenant issues
Parties with control of premises should implement guidance on containment, delay and mitigation as issued by PHE, Department of Health & Social Care and WHO.
For single let properties, where the landlord provides no significant services, tenants should take appropriate steps to protect employees and visitors as outlined elsewhere in this note.
For multi-occupied properties including multi-let offices, shopping centres, co-working space, co-living space and student accommodation, landlords and operators are unlikely to have sufficient control over occupiers to impose a strict hygiene regime or quarantine rules but should nonetheless make anti-bacterial cleansers available in common areas. Consider providing guidance and updates to occupiers similar to those recommended for employees. Common areas such as gyms should remain open and services should be maintained unless there is a specific Government directive requiring closure.
In the event of a specific case of COVID-19 being established landlords/operators and tenants/occupiers should cooperate with each other and the relevant authorities to restrict access to premises and allow for decontamination.
It is unlikely that rent cesser provisions, force majeure or frustration could be relied up to reduce or extinguish rental liabilities for uneconomic premises due to downturn linked to COVID-19 in the absence of specifically negotiated terms.
Supply chain issues/maintaining commercial relations
Identify your key suppliers and key customers, and:
- Assess critical elements of supply chain, especially for manufacturing businesses with "just in time" stocking policies
- Review delivery schedules to identify customers who may be subject to late delivery
- Review relevant contracts so you know each side's contractual obligations and any rights of third parties, noting in particular any contracts with "time is of the essence" provisions
- Do not assume that you or they will necessarily be in breach of contractual obligations for non-performance
- Once you understand your legal position, pick up the phone to suppliers and customers to discuss mutually acceptable contingency planning for optimal contract performance and/or possible minimum service requirements on a temporary basis, subject to regular review
- Consider whether any contractual term(s) can be changed by agreement now, in light of restrictions that have been imposed or might be imposed in the future – for example, it may be possible to agree that disputes are resolved by arbitration, which is more flexible than traditional litigation, using videoconferencing technology and avoiding travel to attend a court hearing
Catastrophic impact on contractual performance
Consider whether your or a counter-party's ability to perform contractual obligations may be fundamentally affected, directly or indirectly, by COVID-19.
If so, consider whether any relevant contract contains a force majeure clause, which could excuse one or both parties from compliance with their contractual obligation(s). Think carefully about whether triggering such a clause would be in the long-term interests of your business or whether another solution would be preferable.
If you wish to rely on such a clause:
- Check, and comply with, the strict notification requirements under the contract
- Monitor closely the development of COVID-19
- and collect documentary evidence in support of the occurrence of any force majeure event listed in the contract
- Consider any mandatory regulations imposed by the Government from time to time and liaise with contracting parties over compliance and/or any necessary variation to contractual obligations/performance requirements
- Outside of any mandatory requirements consider and comply with best practice in accordance with official Government guidance from time to time in order to best preserve contractual performance and evidence mitigation of potential losses
- Obtain evidence as to how the epidemic (or other force majeure event) has caused the critical delay, by reference to a critical path analysis, building schedule, employment records etc. Build a record base of the relevant data to evidence your position/loss
- Continue to collect evidence of the ongoing impact, so that you can identify when the force majeure event comes to an end
- Formulate and document any emergency plans to
- mitigate the effect of such force majeure events.
- Plan carefully how multiple contracts interact – for example how you might allocate a reduced supply between several customers.
If non-performance is not covered by a force majeure clause, take legal advice on potential liability before notifying your counter-party, with a view to identifying commercial solutions. In extreme cases, the contract could be frustrated, although this would require careful legal analysis.
If an escalation of the COVID-19 virus causes business interruption or suspension that adversely impacts on cash flow, PAYE (income tax and national insurance contributions), payment on account of corporation tax, as well as VAT may become hard to fund. If this is the case, make an early notification to HMRC, which ought to be sympathetic.
Separately, monitor any tax deadline extensions that may be issued by the Government to support business.