Under section 82 of the Coronavirus Act 2020 Landlords are prevented from forfeiting “relevant business tenancies” until 30 June. Regulations have also been made restricting the use of Commercial Rent Arrears Recovery during the same period, and emergency legislation is in place preventing Landlords from serving statutory demands and instituting insolvency proceedings.
Section 82 states that:
A right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent, may not be enforced, by action or otherwise, during the relevant period.
You will note that there is no mention within the section of the Tenant’s ability to pay even though the government’s announcement, heralding the legislation, stated that it was intended to benefit Tenants unable to afford to pay their rent. Even some big players in the market, for example Primark, are reported to have withheld the March quarter day’s rent.
Despite this, tenants should be careful before withholding rent and other lease payments, for example insurance and service charges (which are included in the legislation) as landlords do not necessarily have to take a passive role.
Which tenancies are included within the legislation?
Under the legislation a “‘relevant business tenancy” is wide enough to include all business tenancies within Part 2 of the Landlord and Tenant Act 1954, even those that have been “contracted out” of the security of tenure provisions afforded by that Act.
As we have seen, there is no means test to the legislation. Even a Tenant which has sufficient financial resources to pay the rent can take advantage of the new law regardless of their financial position.
The following tenancies/licences are not within the protection of section 82:
- A licence to occupy (unless it is in reality a lease)
- A tenancy at will
- Tenancies that are expressly excluded from Part 2 of the 1954 Act, such as farm business tenancies and tenancies not exceeding six months
If rent is not paid, do Landlords still have a right to forfeit?
As section 82 is limited to forfeiture for non-payment of rent, it does not stop a Landlord from taking enforcement action based upon other breaches of the lease, to the extent that such action may practicably be taken during lockdown. In practice, with courts currently running skeleton staffs, such action may, to all intents and purposes, be practically precluded at least in the short term.
What are a Landlord’s current options?
The government is keen to encourage collaboration and negotiation rather than litigation between Landlords and Tenants, even during the protected period. If negotiations are however not possible or ultimately unsuccessful Landlords are still entitled to:
- Take payment from a rent deposit
- Add interest to the debt in accordance with the interest provisions in the lease
- Sue the tenant and/or any guarantor for the debt, though there are the obvious difficulties with the same under lockdown as pointed out above
Landlords will have to consider the practical consequences of forfeiting given the current and future economic climate and the implications of working practices in the “new normal”. It is likely that many properties will be difficult to let for the foreseeable future and Landlords will want to avoid assuming liability for business rates.
What is the position come the 30th June (or longer if the relevant period is extended or modified)?
These are unprecedented times. Landlords will need to think outside of the box when faced with Tenants withholding rent. Ultimately, Landlords may not want to lose their Tenant or force them into administration/bankruptcy. It may be, for example, in return for agreeing a formal rent holiday or a reduction in the rent to help a struggling Tenant through the current pandemic, that the Tenant may be prepared to agree to, for example, extending their term or removing a break clause? A quid pro quo which, although not ideal to a Landlord (or possibly even a Tenant) is a commercially sensible solution to a problem.
Come the 30th June (or longer of the relevant period is extended) the Landlord’s right to forfeit is preserved if rent remains in arrears. Therefore, Landlords will need to make quick decisions as to whether to forfeit or risk waiving the right by continuing to act as if the lease is still in place by, for example accepting arrears and future rents.
If you are a commercial Landlord or Tenant looking to re-negotiate terms under a lease, or a Landlord looking to forfeit, why not contact one of Alexander JLO’s expert lawyers who will be more than happy to assist?