If you hold or operate such premises please consider the following steps as a checklist before entering into such arrangements:
- Title restrictions: check the underlying title to ensure that there are no restrictive covenants preventing use (or check if title indemnity insurance is available) and that the necessary easements are available to properly operate the new use.
- Superior lease restrictions: check permitted use, rights and reservations. Check in the case of shared areas/common parts if the proposed user will affect the continued use of those areas.
- New lease/licence documents:
- dependant on proposed use, consider if there need to be specific indemnities around health & safety and waste disposal, breach of legislation;
- provide for: making good damage and full reinstatement; removal of contaminated material; use of conduits and overloading provisions
- the document should be short term, contracted out of the Landlord & Tenant Act and be incapable of assignment/underletting
- consider adding provisions requiring a deep clean and inspections on yielding up
- if for medical use as an overflow (not for quarantine or treating Covid-19 cases) consider restricting to very specific medical or other uses.
- Planning: check the current authorised use and consider whether it is appropriate to apply for a change of planning use or whether appropriate indemnities/breaks can be put in place to cover any enforcement action.
- Franchise Agreement:
- request suspension and/or written consent to depart from brand standards to match the term of any agreement with the proposed user
- request a suspension in franchise fees
- the franchisor here may request sight of the lease/licence arrangement with the proposed user to ensure there are provisions to protect/reinstate brand standards when the property is vacated
- consider reinstatement requirements to the most up to date brand standards at date of reinstatement.
- Hotel Management Agreement: consider whether the services can be provided or whether they need rationalising and as appropriate request temporary suspension of obligations and payments.
- Financing arrangements: review loan covenants and obtain temporary amendment letter to cover proposed use and to reflect income levels.
- Insurance: dependant on specific use consider carefully any enhanced insurance requirements.
- Termination and break options: consider whether these are required and on what basis. A balance to be had between some certainty of income and the ability to get back to the trade for which the premises were previously put to use.
Things are moving quickly and different jurisdictions are affected in different ways. For example:
UK: It is reported that hotel chains are in talks with the UK Government to be used to support the NHS – primarily reports say they would be used to house low-risk patients and NHS staff.
France: the French government has proposed the adoption of a health emergency law enabling the First Minister to take a Decree allowing the requisition of any goods and services needed to combat Covid-19. Owing to the general terms used we believe that hotels shall be affected by this Act.A priori a Governmental decree is required to implement this measure, which means that no lease or other agreement with the requisitioned hotels is needed. Indemnification of such requisitions is regulated by the French Defence Code.
Spain: the hotel gran colón in Madrid has been offered by the property for medical use as it close to one of the main hospitals in Madrid. Other hotels are offering their space too, and there does not seem that there is going to be any payment for use.
Germany: the use of Hotel capacities during the crisis is in discussion, healthcare is a local competence (not federal) so different approaches and developments are occurring. The discussion of using Hotel capacity goes along with the need for caretakers – and so discussion that hotel employees might be trained (especially for cleaning and assisting nurses) is also taking place.
Italy: In Milan the Regional Government is setting up new hospital facilities by using part of the old exposition centre, turning it into an hospital with 500 beds capable to provide intensive care units for people suffering of Coronavirus. There are also reports that some hotels may be turned into first aid centres.
We hope hotel and leisure businesses find our checklist useful in these uncertain times. DWF has a dedicated cross jurisdictional team focused on the Hospitality & Leisure sector. We are here to support you in navigating the legal requirements and considerations of temporarily repurposing premises in respect of the expanding requirements of the essential and emergency services.
We have prepared a draft suite of documentation that can be utilised quickly as there will be very little time for negotiation.
If you have any questions or require advice please contact Melanie Williams, Head of Hospitality sector.