Tenants to receive further protection amid Coronavirus difficulties
In order to protect businesses and the economy, the Government has introduced provisions, under section 82 of the Coronavirus Act 2020 (the “Act”), preventing landlords from enforcing rights of re-entry or forfeiture (by proceedings or by peaceable re-entry) against relevant business tenants for non-payment of rent during the relevant period.
The moratorium on forfeiture will effectively mean that landlords will not be able to bring a lease to an end where tenants fail to pay rent for the period between 26 March and 30 June 2020, or such later date as the Government may see fit to ensure adequate protection for businesses.
For the purposes of the Act, the term “rent” includes any sums payable under the lease and extends to service charge, insurance payments, utilities, interest and any other payments due.
The moratorium will apply to all business tenants as defined in Part 2 of the Landlord & Tenant Act 1954. This covers all business tenancies, but will not apply to those occupying by way of a tenancy at will or other contractual arrangement which does not grant exclusive possession. Similarly, the moratorium does not apply to short leases of six months or less (except where the lease contains a right to renew beyond six months, or where a period of prior occupation together with the lease term exceeds 12 months).
Cause of arrears
The tenant will not be required to prove that the rent arrears were caused by the outbreak of COVID-19.
These provisions do not waive or even suspend a tenant’s obligation to pay rent under a lease, it simply prohibits forfeiture for a period of time. The moratorium on forfeiture does not therefore mean the debt is written off: other remedies for the recovery of rent, such as a pursuing guarantors (including any liable under an Authorised Guarantee Agreement) and withdrawing from a rent deposit, are still available options for landlords whose tenants fail to pay rent. However, the Government’s press release last week confirmed that further emergency measures will be enacted to protect tenants from landlord’s serving statutory demands and Commercial Rent Arrears Recovery will only be available to landlords when 90 days or more of unpaid rent is owed.
In addition, once the moratorium ends, landlords will be able to forfeit leases for both unpaid sums due during the moratorium period and for any unpaid sums that become due after it is lifted, including any accrued interest.
Lastly, it is important to note that the Act only prevents landlords from forfeiting leases for rent arrears, leases can still be forfeited where a tenant breaches other covenants contained in the lease such as permitted use, repair etc.
The moratorium provides a short-term tool for businesses to preserve and control their cash-flow, but they will need to budget any sums due during the moratorium, as being due by 30 June 2020, to avoid forfeiture in the future. The moratorium only defers payment so tenants should reach out to landlords now to try and negotiate rent holidays, reduced rents or alternative payment schedules. Whilst there is no obligation on the part of the landlord to agree any concession, we are seeing many landlords trying to help their tenants survive the current crises. Any agreement reached should be formally documented to avoid any ambiguity.
In uncertain times, business tenants will look to minimise their property commitments in order to reduce costs. One of their options may be to exercise a break in a lease if such an option is included. However, case law has demonstrated the importance of tenants (and landlords) strictly complying with any conditions that are attached to a break clause. Often, this includes giving a landlord vacant possession, following the exercise of a tenant’s break notice. Failure to do so can be costly and have drastic consequences for a tenant; any failure to comply with a condition is likely to invalidate the break, resulting in the lease continuing for the remainder of the original term.
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