WHAT THE CORONAVIRUS ACT 2020 MEANS FOR COMMERCIAL LANDLORDS AND TENANTS*

6 April 2020

Are you a commercial landlord or tenant who has not received or is struggling to pay rent this quarter due to the COVID-19 pandemic? Are you wondering what the new Coronavirus Act 2020 means for your commercial lease?

This note explains some of the ways in which the Coronavirus Act 2020 impacts both commercial landlords and tenants and practical steps landlords and tenants should consider in this context.

We are here to help you

We are currently facing unprecedented circumstances. Although this briefing note is intended to give you an overview of commercial landlords and tenants’ positions, your circumstances may require bespoke advice.

We have put in place contingency plans so that we continue to stand ready to assist you notwithstanding the stringent health measures now put in place by government.

If you have any questions or concerns about the issues raised below or by your situation, please contact our office on 020 7034 4200 or at disputeresolution@streathers.co.uk.

The Coronavirus Act 2020

The Coronavirus Act 2020 was given Royal Assent on 25 March 2020 (the Act) and most parts came into force the same day.

Section 82 of the Act creates a moratorium period of three months, until 30 June 2020, during which landlords may not forfeit commercial leases for non-payment of rent.  This period may later be extended by further regulations.

The moratorium applies to forfeiture by Court proceedings and physical re-entry equally in respect of non-payment of rent.

‘Rent’ for the purpose of the Act includes any sum a tenant is liable to pay under their tenancy and includes service charges, insurance or any other payment.

However, you must remain aware that:

• Tenants remain liable for rent during the moratorium, but non-payment up until 30 June 2020 cannot be actioned by forfeiture by the landlord.

• Section 82 only applies to rent and not for breach of other covenants such as repair or permitted use.

Which commercial tenants benefit?

Section 82 of the Act applies to two categories of tenancy.

First, it covers business tenancies under the Landlord and Tenant Act 1954, including those which are contracted out.  Even if tenants have had to close the premises business, for example because of the Health Protection (Coronavirus, Restrictions)(England) Regulations 2020, they will benefit from section 82 so long as they can show a firm intention to return to the premises once lawfully able to do so.

Second, section 82 applies to head tenancies, provided that some part of the building is occupied for business purposes.  This means that even holders of headleases who may not themselves occupy the building for business purposes will have protection against a superior landlord seeking to forfeit their lease if, for example, a headlessee cannot pay rent because it has not received any from its undertenants.

It is however unlikely to catch other types of tenancy, for example tenancies with a term of less than 6 months including farm business tenancies, tenancies relating to electronic communications apparatus, tenancies at will and licences.

The Act also prevents landlords with existing forfeiture proceedings on foot from recovering possession until after 30 June 2020, by requiring that judges give dates for possession after 30 June 2020.

Landlord’s continuing enforcement powers  

A landlord is still legally entitled to:

• Take payment from a rent deposit to cover any unpaid rent;
• Add interest to unpaid rent in accordance with any interest provisions in the lease;
• Seek to bring debt claims against the tenant and/or any guarantor for unpaid rent;
• Exercise Commercial Rent Arrears Recovery; and
• Serve a statutory demand and proceed with insolvency action.

Landlords may face practical difficulties in pursuing some of the above during a period of lockdown however and landlords should seek advice.  Please see our Briefing Note: ‘The Effect of Covid-19: Dispute Resolution without the Courts’.

The government is, however, keen to encourage collaboration rather than litigation between landlords and tenants especially during the moratorium, so dialogue between landlords and tenants is encouraged when difficulties arise.

What happens after the end of the moratorium?

What happens after 30 June 2020 will depend on what the government decides to do in terms of the restrictions on trade and movement.

Currently, when the protected period ends landlords will be entitled to recover any unpaid rent including any interest. The landlord will also be free to forfeit any lease if payment is not made.

However, if the government decides that the lockdown has not been sufficient, they may consider extending the protected period so as to ensure that business tenants remain protected.

Practical steps landlords should consider

• Seek legal advice as soon as difficulties arise, for example if tenants stop paying rent or a landlord of a headlease encounters any difficulty with a superior landlord. 

• Consider their position under any loan facility or headlease before agreeing to vary the terms of leases to relax rent provisions. 

• Decide whether or not their own cashflow can survive a period of reduced rent receipts and whether to accept that as a temporary circumstance whilst the pandemic continues.

• Plan for the end of the moratorium by considering how to deal with tenants who cannot or will not pay their rent. The Act provides that no conduct of the landlord during the moratorium (other than an express written waiver) is to be regarded as waiving the right to forfeit. The landlord’s right of forfeiture is therefore preserved.

• Consider the commercial implications of forfeiture after the end of the moratorium: will it be more cost- and time-effective to negotiate payment plans with existing tenants, or exercise the right of forfeiture and find a new tenant?  Is the prospect of finding a new tenant feasible, or will that in turn mean a gap in rent receipts too?

Practical steps tenants should consider

• Seek legal advice if you are in any doubt as to whether the Act applies to you, difficulties arise in paying rent or some other question arises.

• Continue to pay your rent insofar as possible. This will reduce costs and potentially interest on late rent demanded after the end of the moratorium, and demonstrate your commitment to keeping the lease going.

• Plan business strategy with regards to rent payments bearing in mind the commercial realities of your business now and into the fourth quarter and beyond. If you are facing difficulties, contact your landlord as soon as possible to enter into discussions about how practically to deal with the situation.

• Non-payment of rent by tenants will be disregarded after the end of the moratorium if a landlord seeks to oppose a tenancy renewal on grounds of ‘persistent delay paying rent’, so bear in mind the long-term relationship with your landlord when assessing next steps.

Streathers Solicitors LLP

6 April 2020

Contact us

To discuss how we can help you, please call our office on 020 7034 4200 and ask to speak to a member of the Dispute Resolution team.

*The Briefing Note reflects the position as at the date of publication. The information in this Briefing Note is not intended to amount to legal advice to any person on a specific matter or case. You are advised to obtain specific, personal advice from us about your case or matter and not rely on this Briefing Note.