The Coronavirus Act 2020 – The moratorium on forfeiture explained
The 2020 Act prevents landlords from forfeiting the lease and enforcing a right of re-entry from 26 March until 30 June 2020, subject to extension at the discretion of the Secretary of State.
The 2020 Act currently restricts a landlord’s right to forfeit the lease for reasons of non-payment of rent only. Landlords can still bring forfeiture action for other material breaches of covenant, such as wilful damage or carrying out unauthorised alterations. There are however, some substantial legal hoops to jump through.
A landlord must serve a “Section 146 notice” (Law of Property Act 1925) on the tenant, which should include details of the breach to allow the tenant an opportunity to remedy this. The notice must specify a date by which the tenant must remedy the breach, which should be reasonable in the circumstances, given the nature of the breach. If the breach is not remedied within the time period specified in the notice, the landlord may apply to the court for an order authorising forfeiture of the lease.
At this stage, the tenant may apply for relief from forfeiture which, if granted, will restore their lease, as if this was never determined. A costs award may be made in favour of the landlord, but both sides could be significantly out of pocket by the end of the process. Careful consideration should therefore be given to the nature of the breach, and alternative remedies before seeking court intervention, particularly at a time when courts are suffering increased delays.
The government announced on 23 April that they will temporarily be banning the use of statutory demands and winding-up orders where a corporate tenant is unable to pay rent due to coronavirus. These measures will be included in the Corporate Insolvency and Governance Bill. Daniel Browne writes about the latest press release here.
A statutory demand is a written demand for payment served on the tenant in compliance with certain statutory requirements. If the tenant is a company, the amount owed by the tenant must exceed £750, or £5,000 if the tenant is an individual. If the tenant does not make payment within three weeks of service of the demand, then the landlord may issue a winding-up petition or bankruptcy petition to their commercial or residential tenant respectively.
The government is also preparing secondary legislation to delay a landlord’s ability to use Commercial Rent Arrears Recovery (CRAR) procedure to recover debts. It is likely this will only be able to be used where a commercial tenant owes at least 90 days of unpaid rent.
CRAR, introduced in 2014 to replace ‘Distress for Rent’ law, allows commercial landlords to use enforcement agents to take a tenant’s goods for sale in order to recover a debt. It also allows commercial landlords to recover rent direct from a sub-tenant on default of the tenant.
Details of how these measures will take effect are yet to be released, but it would follow the general principles of the moratorium under the Coronavirus Act 2020 if landlords were permitted to rely on these remedies immediately after the end of the ban, in respect of any debts accrued during the ban.
The remaining remedies for non-payment of rent that remain open to landlords include:
1. Rent deposits
If you are seeking to draw down on a rent deposit, be sure to review the terms of any rent deposit deed, or relevant clauses in the lease if the provisions are built in, and ensure the drawdown is effected in accordance with the relevant terms. The tenant will likely need to be notified of the drawdown, and will be required to replenish the rent deposit account within a specified period of time.
2. Guarantors and AGAs
You will have a contractual relationship with your tenant’s guarantor via the lease, or your previous tenant if an AGA was entered into on assignment of the lease. The 2020 Act does not prevent court action being taken against a guarantor who fails to fulfil their contractual obligations.
It is important to note that once the statutory moratorium period is over, landlords may immediately deal with any unpaid rent that has accrued during the moratorium in the usual way.
This is provided that landlords have not entered into any voluntary arrangements such as rent concessions or waivers documented by side letter, deed of variation, or surrender agreement. Landlords who intend to enter into such arrangements should consider whether consent is required from their lender.
Under the 2020 Act, landlords are not obliged to ‘accept’ the breach of non-payment of rent by the tenant. During the moratorium, landlords are in fact protected from inadvertently waiving their right to forfeit, for non-payment of rent only.
Prior to 26 March 2020 (and once the moratorium period concludes), continuing to demand rent and deal with the tenant, such as addressing applications for consent under the lease, will likely waive the landlord’s right to forfeit the lease. This remains the case during the moratorium if the breach is something other than non-payment of rent or other charges.
It is clear from the recent moves to ban statutory demands and delaying a landlord’s ability to use CRAR that the government is willing to intervene wherever necessary to safeguard as many businesses as possible. Landlords are in effect being encouraged to move away from litigious action such as forfeiture and debt recovery, in favour of commercial arrangements that allow for a period of flexible rent payments. However, landlords should bear in mind that there is no obligation to agree rent concessions or ‘accept’ the breach of non-payment of rent.
Emma Robinson is an Associate in the Real Estate team advising on a wide range of property transactions including commercial acquisitions and disposals, refinancing (including bridging finance) acting for lenders and borrowers, high value residential property matters, and commercial leases.
On 16 March 2020 Number 10 advised those living in the UK against “non-essential travel” in order to curb the growing outbreak of Coronavirus. This encouraged many office-based businesses to communicate to their employees that they should work from home until further notice.
The UK is currently facing a housing crisis. Looking at London in particular, the property market has not been able to support the exponential growth of residents in the capital.
A Director at the National Crime Agency recently voiced concern about crypto assets being used to fund property purchases in the UK. The NCA’s Nigel Leary was quoted by The Times as saying: “Anything purchased with crypto assets I’d be slightly sceptical about. I’d like to see why they’re being done in that way and what the requirement is for that anonymity, and why it needed to be done in a crypto transaction.”
The price of Bitcoin and other crypto assets is notoriously unstable. Whether caused by a cryptic crypto related tweet from a billionaire inventor, or a crypto crackdown being announced by regulators of the world’s second largest economy, the rise and fall of crypto assets continues to prove that crypto can be risky business.
Most of us have spent the last few months largely confined to our homes, as we do our bit to follow the “stay home” guidance and fight the pandemic. Whilst every household is different, most will attest to the stresses and strains that have evolved from not leaving the house, home-schooling, working from home, working from home whilst home-schooling or being furloughed and unable to go to work.
As you will be aware from our earlier blog, the government introduced a Stamp Duty Land Tax (SDLT) holiday which began on 8th July 2020 and ends on 31st March 2021.
The Government has published the most recent Health Protection (Coronavirus Restrictions) (England) (No. 4) Regulations 2020 (“the Regulations”), taking us into a second lockdown, which will likely remind buyers and sellers of the months in which they could not view houses and building sites, and added complications to exchanging contracts, or completing transactions.
The Chancellor has today announced that there will be an 8 month temporary cut in SDLT with no charge on ‘any’ residential property transactions with a value under £500,000, by lifting the SDLT threshold from £125,000 to £500,000.
As the June quarter date fast approaches and the economic impact of COVID-19 begins to be felt across all sectors, what steps should landlords be taking to vary their lease arrangements with tenants who are unable to meet their rental obligations, and could a reduction in rental income due to COVID-19 put landlords in breach of their own obligations under their loan facilities?
Frequently Asked Questions on the Building Safety Fund
Since we published our blog “Conveyancing in a time of COVID-19: Can I still exchange contracts on my property?” the Government has revised its advice on moving home.
As the UK eases its lock-down measures, employers need to start planning a safe return to work for staff. In the short-term, this means providing a ‘COVID-19 secure’ environment, enabling staff to maintain social distancing whilst attending work.
The government’s legal intervention by way of the Coronavirus Act 2020 impacts a landlord’s ability to seek possession of their property for non-payment of rent, whether residential or commercial.
The restrictions imposed by the UK Government to help fight the spread of coronavirus have hit thousands of businesses over the last few weeks. An Office for National Statistics survey found that 25% of businesses had temporarily closed or paused trading in the UK, based on answers of over 5,000 businesses surveyed.
In line with the various protective measures imposed by section 82 of the Coronavirus Act 2020, the Government has now issued a press release confirming that it will be introducing further emergency measures to protect commercial tenants by prohibiting the use of statutory demands and winding up petitions/orders by landlords.
The current government lockdown is making everyone aware of their living arrangements. Relationships are being put under new pressures and the current emotional and financial impact of the virus may be causing additional stresses in a relationship. It is a sensible time to make sure you understand how you own your property and the implications of such ownership.
In light of the restrictions on movement imposed by the Government to combat COVID-19, the Ministry of Housing, Communities and Local Government has issued “Government advice on home moving during the coronavirus (COVID-19) outbreak”. This has led to concerns that the UK housing market has been put on hold.
Last month, the Royal Institution of Chartered Surveyors (RICS), The Building Societies Association (BSA) and UK Finance agreed a new industry-wide valuation process for buildings more than six storeys high.
That is because following its recent consultation, the government has announced that it will soon become unlawful to continue to let a non-domestic property with an EPC rating below B, a move that the government estimates could cost approximately £5bn between now and 2030.
With climate change very much in the public eye, and the steady rise of electric car usage, the Government are considering the wider impact on infrastructure and property development. It has recently launched two public consultations.
Skip to content Home About Us Insights Services Contact Accessibility