The Coronavirus Act 2020 has introduced many special measures to respond to the outbreak and some of those measures are aimed at protecting commercial tenants.
A commercial landlord will have the right to forfeit a lease when:
a) the tenant is in rental arrears (usually by more than 21 days);
b) the tenant has committed a breach of the lease.
The ability to forfeit enables the landlord to re-enter the property and terminate the lease.
However, Section 82 of the Coronavirus Act 2020 has limited/delayed those rights for a landlord and states that:
a) a right of re-entry or forfeiture under a commercial lease, for non-payment of rent (which includes service charge, insurance rent and other sums due under the lease) may not be enforced by action or otherwise from 26 March 2020 – 30 June 2020 (this time period is known as the ‘relevant period’ and could be extended); and
b) unless the landlord expressly in writing waives its right to forfeit during the relevant period, any conduct by the landlord will not amount to a waiver of the landlord’s right to forfeit.
In essence, the Act is postponing the landlord’s ability to bring proceedings to forfeit the lease for the reason of tenant’s rental arrears, during the relevant period. This does not mean that the tenant’s obligation to pay the rent is suspended or waived – rents (and interest on unpaid rents) will continue to accrue – but under the Act, the landlord cannot enter the property and forfeit the lease it the tenant fails to pay its rents during the relevant period.
The aim of the Act is to relieve tenants of the burdensome threat of re-entry and the lease being terminated if they are not able to pay the rents during the relevant period.
However, if the tenant does not pay the rents during the relevant period, the landlord may still:
a) depending on the terms of the lease, charge interest on late payments;
b) draw on any rent deposit;
c) explore contractual enforcement i.e. serve a statutory demand, issue a court claim; and
d) indeed, depending on the circumstances, if the rental arrears are not settled prior to the expiry of the relevant period, a landlord is still entitled to initiate forfeiture after the relevant period. This point is equally important for tenants to understand: if the tenant is not able to settle prior to the relevant period, could the Act be delaying the inevitable?
Of course, the effect of the Act has a ripple effect. If tenants are not able to pay rent (and do not have the threat of forfeiture hanging over them for at least 3 months), a landlord may be unable to comply with its mortgage/loan repayments, service charge and insurance policy payments.
Following the introduction of the Act, it’s been highly publicised that many retail tenants have decided not to pay rent, at least, while they’re unable to trade. With the government urging landlords to assist wherever possible (and landlords identifying that a potentially untenanted asset may not be as valuable as a tenanted asset), it would be commercially prudent for both parties to start a conversation to agree and record a voluntary rent repayment plan / deferral / cut / waiver as soon as practicable.
Further reading: Our article ‘Commercial Landlords and Tenants Considering Rent Concessions Amid Coronavirus Outbreak‘ sets out how such an arrangement should be considered and recorded.