Leasing to a Crown tenant? – be aware of Crown Exemption Clauses
The Crown, comprising of the Monarch and the Government, holds a unique legal status that grants it various immunities and exemptions from the everyday laws that apply to individuals and businesses. As the largest owner and occupier of real estate in England and Wales, this distinct status has important implications for landlords considering a Crown body as a commercial tenant.
Historical context
Crown immunity and exemption originate from the medieval doctrine rex non potest peccare (“the King can do no wrong”). Although the principle is centuries old, it has evolved significantly and now operates across many areas of modern law. These exemptions provide the state with the flexibility and operational freedom often required for public policy, national security and other governmental functions. It remains a nebulous area of law and Crown Exemption Clauses (CECs) are no exception.
What is a Crown Exemption Clause?
In respect of commercial leases, CECs are contractual provision that set out a Crown tenant’s exemptions from specific tenant obligations. They provide clarity and avoid contradictions with the usual legislative framework. There is no definitive list of CECs, but you may see provisions relating to the following:
1. Payment terms – the CEC may exempt the Crown tenant from ordinary payment methods like direct debit and outline specific government payment mechanisms. It may also provide for a lower than average default interest rate.
2. Reserved rights – the Crown tenant may require you, as landlord, to comply with certain security requirements when exercising your rights of entry. This may impact, among other things, your ability to inspect and maintain the property.
3. Assigning, subletting and sharing occupation – CECs often allow Crown tenants to either assign to or share premises with other Crown or public‑sector bodies without landlord consent, recognising government policy on space‑sharing. Crown tenants may be exempted from giving an Authorised Guarantee Agreement if the lease is assigned to another Crown body.
4. Permitted use – CECs may stipulate that the Crown tenant may use the property for a broader and more vague range purposes such as ‘any government purpose.’
5. Tenant obligations – the Crown may not be obliged to comply with certain regulations like paying rates, obtaining insurance, securing planning permission, or adhering to certain health and safety rules. This is likely to impact how you manage the property, provide services and other landlord obligations.
6. Enforcement – if there’s a dispute, your usual legal remedies might not apply in the same way. For example, you may not be able to take certain enforcement actions against the Crown, or the process might be more complex.
Conclusion
Leasing to a Crown body offers benefits, particularly in terms of strong covenant strength and payment reliability. However, their significant bargaining power, unique operational needs and special legal status should also be considered throughout your property transaction.
The Commercial Property Team at Bright Solicitors is available to advise individuals and business leasing commercial property to a Crown Body. If you require guidance and would like to discuss your circumstances, please contact our team.
