Authors

Saleem Fazal

Partner

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Edward Cooper

Senior counsel

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Stephen Burke

Senior associate

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Authors

Saleem Fazal

Partner

Read More

Edward Cooper

Senior counsel

Read More

Stephen Burke

Senior associate

Read More

16 March 2021

RED alert - Spring 2020 – 1 of 4 Insights

Coronavirus infection spreads from rents to forfeiture

  • QUICK READ

What has happened?

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.

Commercial leases

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 right to forfeit for non-payment of rent may not be enforced by peaceable re-entry or proceedings until 30 June 2021 or such future date if extended
  • rent includes any sum a tenant is liable to pay
  • a landlord cannot waive the right to forfeit during this period
  • if forfeiture proceedings have already commenced before this becomes law, the tenant cannot be evicted before 30 June 2021
  • the Act applies to business tenancies as covered by the Landlord and Tenant Act 1954 – ie leases of premises occupied by a tenant for the purposes of its business, even if the tenancy has been "contracted out" of the statutory renewal provisions.

Residential leases

The Act also includes provisions to restrict residential evictions:

  • termination notices must now provide at least 6 months' notice, except in limited circumstances
  • this applies to notices for non-payment of rent (previously 2 weeks) and the usual notice period given for a normal termination (previously 2 months)
  • court proceedings may only be brought after the expiry of the 6 months' notice and were stayed until 20 September 2020
  • any possession proceedings issued before 3 August 2020 will remain automatically stayed unless a reactivation notice is served
  • all possession proceedings require service of a notice setting out what knowledge the landlord has as to the effect of the Coronavirus pandemic on the tenant and their dependants.

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 consequences

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!

 

Our comments

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.

In this series

Coronavirus

Coronavirus infection spreads from rents to forfeiture

QUICK READ

by Multiple authors

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