Commercial leases emergency legislation: questions from landlords and tenants
During the coronavirus pandemic, the Government introduced emergency legislation on commercial leases. Partner and Head of Commercial Disputes at Coodes Solicitors, Abi Lutey, discusses the latest implications for commercial landlords and tenants.
Some of the dates below have changed since this blog was published. Read about the extension to some of the legislation here.
The coronavirus pandemic has put a considerable strain on landlord and tenant relationships. The Government has introduced a range of emergency legislation to assist businesses but as we approach the sixth month of the pandemic, tenant cash reserves are depleting and landlords have very few remedies available to help them to recover rent.
Legislation currently in place
Landlords are unable to forfeit commercial leases for nonpayment of rent until at least 30 September 2020, in accordance with Section 82 of the Coronavirus Act 2020. This applies to all business tenancies. This legislation was introduced to provide tenants with protection against eviction as a result of lockdown and the imposed closure of many businesses, during which time they were unable to generate an income.
The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 came into force on 24 April 2020. Prior to this, a landlord could use the Commercial Rent Arrears Recovery (CRAR) process when rent became unpaid for seven days. The amendment extended that initially to 90 and has now been extended further to 189 days unpaid rent before CRAR can be used.
The Corporate Governance and Insolvency Act 2020 prevents landlords from issuing a winding up petition based on a statutory demand for rent arrears where it can be shown that the reason for not paying rent was due to the financial effect of Covid-19 on the business.
Common questions from businesses
Can a lease be terminated by force majeure or frustration?
The doctrine of frustration provides the possibility of an early end to a commercial contract if there is a supervening event not the fault of either party which makes the contract impossible to fulfil. This would be difficult to show particularly with long leases, but it may be of assistance with short term lets. Force majeure occurs where a lease makes specific provision for such an early termination due to a pandemic or similar. It is rare to find such a clause in a lease.
Can a landlord demand future rent during the CRAR moratorium?
Yes, the Coronavirus Act 2020 protects landlords from waiving their right to forfeit during the moratorium.
How should a rent concession be recorded between landlord and tenant?
Any variation from the terms of the lease agreed should be recorded in writing signed by both parties. It should also state the time limit the concession applies to.
What happens to currently suspended existing forfeiture claims?
All possession proceedings that were stayed under Covid-19 legislation will now remain stayed until 20 September 2020. It was initially intended that the deadline be lifted on 23 August but this was extended by the Government on 21 August. These proceedings will now be dealt with by a new practice direction in the Civil Procure Rules 1998 which sets out provision on resuming those claims. They will remain stayed until a reactivation notice is filed with the Court by the landlord or their lawyers.