16 March 2021
RED alert - Spring 2020 – 1 of 4 Insights
The UK Government has passed legislation restricting the right to forfeit/terminate commercial and residential leases on the ground of non-payment of rent. It has also published a new code intended to encourage landlords and tenants to cooperate in resolving unpaid rent issues.
Most commercial tenants were due to pay a quarter of their annual rent on the March 2020, June 2020 and September 2020, December 2020 and March 2021 quarter days. However, the following provisions are set out in the Coronavirus Act 2020 (as recently updated):
The Act also includes provisions to restrict residential evictions:
Government guidance suggests that landlords should be compassionate with tenants unable to pay their rent due to the coronavirus, and encourages them to agree payment plans once the situation improves. It has also been announced that the mortgage payment holidays will also apply to Buy-to-Let mortgages.
There is also a ban on evictions until 31 May 2021, except in certain circumstances.
The Government's code of practice for the commercial property sector was published on 19 June 2020. Further guidance has also been promised. But guidance alone is unlikely to provide a significant shield for tenants unless it is backed up by further measures. The Government has now also launched a "call for evidence" on commercial rents to help monitor the overall progress of negotiations between landlords and tenants. This call for evidence will also set out a potential future roadmap of steps that the Government will take after 30 June 2021. These range from a phased withdrawal of current protections to legislative options targeted at those business most impacted by COVID-19. It therefore appears that no concrete measures have been confirmed beyond the lifting of the forfeiture moratorium on 30 June 2021. However, the Government is welcoming a broad range of feedback as part of the "call for evidence" which may shape its future plans.
Landlords and tenants will also want to keep a keen eye on the Government's review of commercial landlord and tenant legislation later this year. The range of issues is broad - including the Landlord & Tenant Act 1954 Part II, different models of rent payment and the impact of Coronavirus on the market. It is too early to speculate what measures may be introduced – watch this space!
Given the ongoing pandemic, this further (and potentially final) extension was perhaps inevitable as a means to protect the future of commercial businesses in this difficult period where some businesses are hoping to re-open in the near future. However, these provisions do not permanently waive the rents that are due. So tenants will face a mounting debt which will have to be repaid at some point.
Landlord outgoings such as service charge costs will still be payable and this may cause some cashflow difficulties. Certain businesses may be eligible for the Government's Coronavirus Business Interruption Loan Scheme.
by Multiple authors