Nassim Nicholas Taleb coined the term ‘Black Swan Events,’ to refer to events which come as a complete surprise and therefore have a significant impact on society. The phrase originated when English explorers landed in Australia and discovered black swans. Having only ever come across white swans before, they believed this to be their only colour and were understandably shocked by their discovery. The observation completely changed how people thought about the species. The term has been most famously applied to the financial crisis of 2007-08 and is now being used again to describe the COVID-19 pandemic. Even more so than the financial crash, Coronavirus will have unprecedented ramifications in every sector of the economy and almost all aspects of individuals’ lives from commercial businesses to the housing market.
When Scotland introduced private rental tenancy agreements (PRT) in 2017, these were hailed as a win for private renters. Replacing short assured tenancy agreements, old and antiquated documents which gave landlords control over large aspects of tenancy contracts, they provided renters with control over their leases by allowing them to give 28 days’ notice to release them from their contractual obligations. While PRTs shift the balance of power away from landlords towards tenants, COVID-19 has exposed the potential shortcomings of this legislation. In St Andrews, this problem is particularly acute.
As students at the University of St Andrews, we are well aware of the housing issues which face us on a yearly basis. There are too few properties and these are often very expensive and of poor standard. The introduction of PRT leases did at least help address one of these issues – price. An academic year at St Andrews consists of two semesters of approximately eight months. Tenants with favourable landlords often allow leases to begin in September, meaning students only have to pay rent for the eight months of the year that they are studying. Under the previous short assured tenancies, landlords would often extend leases for approximately 10 or 11 months of the year.
While tenants now have the ability to end their leases with 28 days' notice under PRTs, all tenants who signed the lease have to agree to move out. Under normal circumstances, this small technicality is of no consequence. We all end our studies at approximately the same time, and flatmates agree on a mutually beneficial time to terminate their lease.
As the COVID-19 crisis has developed into something far worse than anyone could have imagined, the University took action in March to advise students to return home if possible. I, like many other fourth-year students, returned home with no intention of returning to St Andrews to study. While I remain at home, my bedroom in my student flat remains empty. My flatmate, however, made the difficult decision that returning home was riskier than staying in St Andrews.
This situation highlights a potential weakness of the PRT contract: we both signed the same lease, so in order for the lease to end, we both have to leave within 28 days of terminating the lease. As a result, unfortunately for me, I remain contractually bound to paying my rent for my empty room in St Andrews until my flatmate is ready to leave the property.
In England and Scotland, force majeure clauses can be included in any contract under common law, offering exceptions to contracts in uncontrollable and unforeseen crises, However, the specific wording of the clauses would need to explicitly cite the crises in question and in this case, a global pandemic. However, it is very unusual for force majeure clauses to be included in tenancy agreements, despite it being common practice in building projects and development agreements. This only leaves one tool left in the contract law armoury: the doctrine of frustration. This would allow tenants to end their obligations if they cannot fulfill the purpose of the contract. Despite this, there are no instances of a case of this nature being argued. Invoking the doctrine of frustration is a complicated process, requiring substantial proof, the aid of a solicitor and likely a hearing in court.
In many areas of contract law where force majeure clauses are not included or are not comprehensive enough, or where it is beyond practical means to implement the doctrine of frustration, individuals and businesses are exposed to financial loss. Many contracts today do not include global pandemics in clauses, leaving insurers, homeowners, renters and just about everyone in between in a legal grey area. COVID-19, as a Black Swan Event, will likely change the way we approach legal contracts. Hopefully, it will make us think more in-depth about possible circumstances which could affect our contractual obligations, inspiring us to work towards making legislation more comprehensive. This is the legal process — laws are created, scenarios occur where the law is challenged, precedents are set, and laws are redefined for greater clarity.