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

17 April 2020

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, June and September 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 31 December 2020 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 31 December 2020
  • 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.

The consequences

This clearly impacts on the March, June and September quarters' rents due under commercial leases, but what about future quarters? With the end date of 31 December 2020, this will not currently affect the December quarter date of 25 December as the right to forfeit will generally arise 14 days or 21 days later (ie on around 8 or 15 January 2021). Of course, that date may be extended.

The Government's code of practice for the commercial property sector was published on 19 June 2020 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!

Our comments

Given the concessions on business rates and support of employee wages, this further extension 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.

In this series

Coronavirus

Coronavirus infection spreads from rents to forfeiture

QUICK READ

by Multiple authors

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