Coronavirus Act: Restrictions on landlords seeking possession of business tenancies
Abi Lutey, Partner and Head of Commercial Disputes and Helen Willett, Partner and Head of Business Services at Coodes Solicitors, comment on what the Coronavirus Act means for commercial property landlords and tenants.
The Coronavirus Act 2020 has introduced temporary legislation to protect businesses leasing commercial property. Landlords should be aware of what this means if they are seeking possession of business tenancies.
Section 82 of the act temporarily removes any right to forfeiture for non-payment of rent during the relevant period, which is 26 March to 30 June 2020, or a date later set by the Government.
What does the legislation mean for businesses and commercial landlords?
The new legislation temporarily prevents landlords from forfeiting business leases (including those contracted out of the Landlord and Tenant Act 1954) until at least 30 June 2020. The aim is to give a temporary financial breathing space to those many business tenants whose cash flow has been affected by the restrictions put in place to slow down the spread of the coronavirus pandemic.
Farm tenancies, which are governed by the Agricultural Tenancies Act or Agricultural Holdings Act, are not subject to the new rules.
The legislation does not give businesses a ‘rent holiday’. Rent and other payments due under the lease still become due and payable as usual. The new rules simply delay any action that a landlord may take against a business tenant that does not keep up with rent payments.
The new rules apply to all sums due under a lease to include VAT, insurance, service charges and other professional fees payable under a lease.
Can a commercial landlord take any action against a tenant?
The act does not stop a landlord from taking other action to recover arrears, such as Commercial Rent Arrears Recovery (CRAR) or court debt proceedings. It makes it clear that any action taken by a landlord during the relevant period will not amount to a waiver save for express waivers in writing. This means as soon as the relevant period ends, forfeiture action may be taken immediately.
The remedy of forfeiture and taking premises back is temporarily not available although in today’s climate most landlords will not necessarily wish to do that. And, while the legislation may provide a welcome breather for tenants, it does not wipe the slate clean: rental liabilities will continue to accrue and a day of reckoning will come.
Landlords may face, not only a potentially huge impact on cash flow, where it is unlikely they will receive any rental income for at least three months, but also the risk of being held liable for other services unpaid by the tenant.
What happens to proceedings already issued?
If a court has already ordered that a tenant pay rent arrears and costs and a tenant makes an application to vary the order, the court is unable to make an order requiring possession. Most claims that are issued as possession claims have already been postponed by the courts until after 30 June 2020, at the earliest.
May I still serve notice on my tenant to recover possession?
A landlord can still serve notice on a commercial tenant. However, if a landlord is seeking to rely on the non-payment of rent grounds), any failure to pay rent during the relevant period will be discounted.
Are there any other options available to assist landlords?
Landlords can still use debt recovery methods, such as CRAR against a guarantor or winding up proceedings.
What should landlords and tenants do now?
We would advise tenants and landlords to talk to one another at the earliest opportunity to enable both to plan for the future. While at present there will undoubtedly be some tenants who have already not paid rent when it fell due, there are others actively working with landlords to come up with workable compromises. There is nothing to prevent more permanent changes to a lease although variations need to be recorded by a formal deed.
While the new legislation provides for temporary comfort for businesses, tenants should budget to avoid forfeiture action immediately after the legislation being lifted.