The new Coronavirus Act 2020-21 sets out immediate protection for commercial tenants. Landlords are prevented from forfeiting leases for rent arrears until 30 June 2020. This move will be welcomed by thousands of commercial tenants across the country who have been hit quickly and hard by the pandemic and the restrictions imposed to try to stall its spread.
Which tenants will benefit?
The measures apply to any lease which falls under the definition of a business lease within Part 2 of the Landlord & Tenant Act 1954 (the Act). This covers all business tenancies, regardless of whether they have contracted out of the protection of the Act itself. It is unlikely to catch other types of lease, such as farm business tenancies and those relating to electronic communications apparatus, or tenancies at will and licences.
Rent arrears and other breaches
The moratorium on forfeiture for rent arrears applies not only to rent itself. Rent is defined within the Bill as any sums due under the lease so will include service charges, insurance rent and any other payments due. There is no need for a tenant to demonstrate that the rent arrears have arisen due to the Coronavirus.
The protection only applies to rent arrears (as defined in the Bill). If the tenant is in breach of other covenants, such as repair or permitted use, the usual steps can be taken to give notice and potentially forfeit the lease.
Other steps to recover arrears
The Bill prevents forfeiture but it does not prevent any other recovery methods for unpaid sums under the lease. It is important that landlords and tenants appreciate that the tenant is still liable to pay the rent during this period and will still be liable for any unpaid sums after 30 June 2020.
Landlords may want to consider looking to guarantors, serving statutory demands on tenants or bringing debt claims, utilising rent deposit sums or exercising Commercial Rent Arrears Recovery if they are intent on pursuing a tenant. Landlords should think carefully before pursuing however and engage in constructive discussions with their tenants to see whether an amicable agreement can be reached to not only ease the burden on the tenant but also the landlord’s cashflow.
What happens after 30 June 2020?
At present and provided the restrictions on trade and movement have lifted, the status quo will be resumed. The effect of the Coronavirus Bill does not cancel or even suspend the tenant’s obligation to pay, it just prevents the landlord from forfeiting. Once the moratorium is over, landlords will expect the sums owed to be paid including any accrued interest and will be free to forfeit leases if payment is not made.
During the moratorium only an express waiver in writing will be regarded as waiving the right for the landlord to forfeit after 30 June 2020. This will enable landlords and tenants to agree interim payment terms or temporary lease variations without compromising the position after the moratorium has lifted.
However if the lockdown has not worked as quickly as hoped, the government may consider extending the period to ensure that business tenants will remain protected.
This will be a difficult time for landlords and tenants alike. We are seeing numerous queries from both landlords and tenants. Many are taking different approaches, some tenants are simply refusing to pay the rent knowing that the landlord cannot take any action to forfeit and given the Government lockdown will find it difficult to take any other enforcement action. Other tenants are thinking in the medium term realising that such an approach could cause difficulty for them later down the line and are sensibly working with landlords to come up with a compromise such as a limited rent free period, monthly payment terms or a rent free period in exchange for waiving a tenant only break or an extension of the lease term.
In addition, if landlords have commercial borrowing on properties and depend on rent to fund payments, they should be contacting lenders as soon as possible to discuss delaying or extending payment terms. If service charge works were scheduled to take place in this period, landlords should consider postponing those works until the financial position of the tenant is clearer.
Many tenants will have already failed to pay the March quarter rent payment and should be making sure that they budget for the sum which will need to be paid by the end of June (along with June’s quarter payment) to avoid forfeiture. Tenants must be mindful of other lease obligations, such as insuring the premises, which must still be complied with. Failure to do this could give the landlord an opportunity to forfeit.