COVID-19| Protection from Forfeiture

By Paula Abrahamian

It has been said before. These are unprecedented times. Last week the UK Government introduced emergency legislation known as the Coronavirus Act 2020, which received Royal Assent on 25 March 2020. The Act represents the Government's legislative response to the broad range of issues raised by the COVID-19 outbreak. This article focuses on the changes affecting landlords and tenants of commercial premises.

 

What does the legislation say?

Section 82(1) of the 2020 Act states that: "a right of re-entry or forfeiture under a relevant business tenancy for non-payment of rent may not be enforced, by action or otherwise, during the relevant period".

 

What does this mean?

  • The legislation affects tenancies to which Part 2 of the Landlord and Tenant Act 1954 applies - essentially any business tenancy where the premises are occupied by a tenant or any lawful occupier. This will include business tenancies which are 'contracted out' of the 1954 Act.

  • The word 'occupied' is key. What if the business tenant is not trading because of Coronavirus? If the tenant has been compelled to leave the premises due to circumstances outside its control and is able to demonstrate an intention to return to the premises once it is lawfully able to do so - it will have demonstrated a continuing thread of 'occupation'.

  • As for those businesses that have voluntarily 'shut shop' due to a combination of staff illness, reduced demand or a desire to encourage social distancing, the position is less clear although it is likely the Courts will take a sympathetic view and regard them as captured by Section 82.

  • The ban relates only to forfeiture for 'non-payment of rent' (and not any other breaches of the lease).

  • 'Rent' includes any sum a tenant is liable to pay under the tenancy. This will include service charge and insurance payments as well as the annual passing rent.

  • The Act defines the 'relevant period' as the period beginning on the date the Act was passed (26 March 2020) and ending on 30 June 2020 or such later date as may be specified in regulations made by statutory instrument.

  • This gives the Government the power to extend the end date of the 'relevant period' and that power may be exercised on more than one occasion so as to further extend the period. But for now, the ban on forfeiture applies until the end of June.

  • The ban also applies to cases in which possession proceedings for non-payment of rent had been brought before 26 March 2020.

 

Remedies available to the landlord

Whilst it may sound all doom and gloom for landlords, the reality is that the 'rent' remains due and payable by the tenant so when the ban is eventually lifted, landlords will be entitled to forfeit the lease for non-payment of all accrued arrears. While the legislation will undoubtedly ease the financial burden for tenants for now, it may simply be delaying the inevitable.

Furthermore, the right to forfeit in other circumstances (a non-financial breach or the tenant's insolvency) remains fully exercisable by the landlord (provided that a Section 146 notice has been served under the Law of Property Act 1925).

Need advice?

These are indeed unprecedented times and we will continue to keep you updated on any changes that will undoubtedly unfold over the coming weeks.

There are alternative remedies to non-payment of rent and our Commercial Real Estate team would be happy to talk you through the various options. If you are a commercial landlord or tenant and need advice on your lease, please contact Paula Abrahamian at 020 7632 1443.

 

The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article.

3 April, 2020
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