17 April 2020
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 and June 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.
This will clearly impact on the March and June quarters' rents due under commercial leases, but what about future quarters? With the end date of 30 September 2020, this will not currently affect the September quarter date of 29 September as the right to forfeit will generally arise 14 days or 21 days later (ie on around 12 or 19 October). Of course, that date may be extended.
The Government's new code of practice for the commercial property sector has also just been published but guidance alone is unlikely to provide a significant shield for tenants unless it is backed up by further measures. The speed of economic recovery will undoubtedly dictate whether there is another extension in September – watch this space!
Given the concessions on business rates and support of employee wages, this was perhaps inevitable as a means to protect the future of commercial businesses and security of residential tenants in this difficult period. 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