The government has announced temporary measures to protect commercial tenants from eviction for unpaid rent.
The government has now passed all stages of their emergency Coronavirus Bill through the House of Commons and it is due to go before the House of Lords today.
Once the Bill receives Royal Assent it will come into force immediately and will last until 30 June ("the Relevant Period"). There is an option for the government to extend this date if needed.
Moratorium on forfeiture
- Whilst many landlords and tenants are already having discussions about rental payments, the proposed legislation will provide greater protection to businesses worried about eviction as a result of the impact of the current coronavirus crisis.
- The measures will mean that business tenants cannot be forced out of their premises if they miss a rent payment in the next three months. Landlords will not be able to exercise the right of forfeiture for non-payment of rent (including other payments due under the lease which are reserved as rent) that arises during the Relevant Period.
- As it stands, there is no fetter on a landlord's other rights to recover rent such as the service of a statutory demand or debt claim. Commercial Rent Arrears Recovery (CRAR) is also not restricted (although this is less likely in practice if the property is already closed). If a debt is undisputed a landlord would also technically not be prevented from proceeding straight to a winding up application. Many landlords - particularly those with strong social governance credentials - are open to conversations with their tenants about rent payments in these unprecedented times. Tenants would however be unwise to rely upon landlords being reluctant to exercise these remedies, which have not been prohibited by the draft Bill.
- The measures in the Bill do not waive the right of re-entry or forfeiture, which will only be delayed. Tenants will still be liable for the rent during this time and landlords will still have a right to forfeit after the Relevant Period ends.
Extension of the period for possession in ongoing possession claims for non-payment of rent
- For any forfeiture proceedings commenced before the Relevant Period, the Courts must not make an Order for the tenant to give possession to the landlord before the expiry of the Relevant Period. If such an Order has been made, it is to be treated as extended.
Limiting grounds of opposition under the Landlord and Tenant Act 1954
- For the purpose of opposing the grant of a renewal lease under the Landlord and Tenant Act 1954, any failure to pay rent during the Relevant Period is to be disregarded if a landlord is seeking to rely on the statutory ground of persistent delay in paying rent.
Comment
The government hopes the draft Bill will become law before tomorrow, the March quarter day: a rent payment date in many commercial leases. While many leases will contain a grace period preventing forfeiture action for a specified period (often between 7 and 21 days), lease provisions should be considered carefully by tenants as to what, if any, action could be taken by their landlords if the legislation does not receive Royal Assent in time.
Aside from the remedies mentioned above, the legislation also does not prevent landlords from seeking to argue that there has been a repudiatory breach of a lease; this is outside the forfeiture regime. Tenants will need to exercise caution in their communications with landlords and ensure their compliance with other tenant lease covenants during this time to minimise this risk.
More generally, what will this mean for the sector? The government has said that it will monitor the impact on landlords' cash flow. The question arises as to how many tenants will be in a position to pay the outstanding rent once the moratorium is lifted. Absent further government intervention, the imperative is now on commercial negotiations between landlords and tenants to ensure that businesses can survive long-term and landlords' income streams are protected.
Your usual Trowers contact would be happy to assist with wording for any rent concession arrangements between landlords and tenants and to help you liaise with insurers and (if applicable) funders as needed.
