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Coronavirus and commercial tenancies: what you need to know

The Coronavirus Act 2020 has now received Royal Assent and of particular interest to commercial landlords and tenants will be the provisions relating to a moratorium on forfeiture of commercial tenancies for non-payment of rent. Previously a landlord could, if the lease permitted it, forfeit a tenancy (i.e. evict the tenant) for non-payment of rent. The Act has temporarily suspended this right with the relevant changes in relation to forfeiture for non-payment of rent are set out in Section 82 of the Act.

The moratorium

The primary provision in Section 82(1) provides 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”

What is a relevant business tenancy?

Section 82 applies to any tenancy where the premises (or part of the premises) are occupied by the tenant for business purposes (including tenancies which are “contracted out” of the Landlord and Tenant Act 1954)

What does “rent” cover?

In the context of the Act, “rent” includes “any sums a tenant is liable to pay under a relevant business tenancy”. This covers not only the principle rent but all purely financial obligations under the lease including service charges, insurance rent, interest payments and administrative fees.

What is the “relevant period”?

At present the relevant period during which forfeiture for non-payment of rent cannot be invoked is the period from 27 March 2020 to 30 June 2020. This period may, however, be extended by the regulations. This provision will apply even where the non-payment of rent occurred outside of the “relevant period”, for example if a tenant failed to pay the rent due on 1 March 2020 a landlord will not be entitled to forfeit a lease during the relevant period.

What the Act does not cover

The Act does not remove the tenant’s liability to pay rent, rather it limits the Landlord’s rights in respect of non-payment. A non-paying tenant may therefore still be faced with a statutory demand or other means of debt recovery during this period and for the time being guarantors will remain on the hook for any unpaid rent. Therefore if a tenant is facing difficulties paying rent, or other sums due under the lease, the first step should be a discussion with its landlord to try and agree to a course of action and avoid any “rent enforcement” action from being taken.

The moratorium does not apply to breaches of the non-financial obligations under the lease (such as an obligation not to assign or underlet the lease) and a landlord can still seek to forfeit a lease for those breaches (subject to following the correct statutory procedure)

Overview

Communities Secretary, Rt Hon Robert Jenrick MP, has said that “these new measures will provide reassurance to businesses struggling with cashflows and ensure no commercial tenant is evicted if they cannot pay their rent because of coronavirus over the next 3 months”. Whilst the new legislation achieves its aim of tying a Landlord’s hands during the relevant period, the Act does not go so far as absolving a tenant from its liability to pay rent. When the relevant period expires, and the moratorium is lifted, a landlord will be able to forfeit the lease for non-payment of the accrued arrears.

In other words the new legislation does not go so far as to ensure that no commercial tenant will be evicted if they cannot pay their rent over the next three months, rather no tenant will be evicted in the next three months for missing a payment during that period. This is a subtle but important point to note.

This is undoubtedly going to be a difficult period for business and any business that is struggling to pay rent should keep a dialogue open with its landlord. It is unlikely that the Act alone will deliver significant benefits to business tenants struggling financially during this period: what is required is a collaborative approach between landlords and tenants. Many landlords will benefit from a mortgage moratorium and may therefore be amenable to agreeing more reasonable rent payment terms such as a reduced rent, a change in rent payment terms to a monthly rent or a rent free period.

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