The Coronavirus Act 2020 which was introduced on 25th March 2020 and whose measures came into effect on 26th March 2020 has suspended a landlord’s ability to take forfeiture action for business tenancies (as defined within the Landlord and Tenant Act 1954) in England and Wales. This means that business tenants who are unable to pay their rent will be protected from forfeiture.
Failure to pay rent and forfeiture
The likelihood of a commercial lease including a provision for withholding rent, regardless of the circumstances is almost non-existent.
To withhold or fail to pay rent exposes a tenant to the risk of a landlord exercising what is known as ‘peaceable re-entry’ to the premises whereby the landlord would be within their rights to re-enter the premises without notice and court action and change the locks, thereby bringing the lease to an end.
This process is referred to as ‘forfeiture.’
Ordinarily, a tenant may seek to obtain relief from the Courts in the event that the rent arrears and the landlord’s costs were paid.
However, with the introduction of Coronavirus Act 2020 (the Act), a tenant’s rights are protected in that between 26 March 2020 and 30 June 2020 (or such later date as may be specified by the government), a business tenant cannot be evicted from their premises for non-payment of rent within this 3 month window. In the same vein, no action by a landlord (other than service of an express waiver in writing) will be regarded as waiving a right of re-entry or forfeiture for failure to pay rent. At first glance, this may be seen as a golden ticket for business tenants.
It is important to note however that the suspension applies to non-payment of rent only, not other tenant covenants. In practice, this means that a landlord could still forfeit its tenant’s lease if, for example, the tenant fails to pay the insurance or service charge.
Whilst a landlord is prevented from taking action to obtain possession of the property due to non-payment of rent as a consequence of the Act, it doesn’t prevent the rent from being payable and leaves the door open for the landlord to take enforcement action, whether contractually or otherwise or seek alternative remedies to possession for non-payment of rent, including but not limited to CRAR, service of a statutory demand/insolvency, enforcing against a guarantor or even issuing a money claim at the county court.
Rent Concessions
As a consequence of the outbreak of Coronavirus, we are witnessing higher levels of tenants approaching their landlord with proposals for sharing the rental risk or making voluntary arrangements about rental payments which are due soon or imminently.
At present, we are advising both landlord and tenants as to their rights and these arrangements in particular so please do not hesitate to get in touch with our Housing Team at Parker Thomas if you require assistance. We are able and prepared to assist you during these demanding times with drafting or responding to requests and/or offers for rental concession.
It is likely to be the case that tenants may request a reduction in rent or re-engineering of the lease terms to accommodate for the current pandemic.
It is important to note however that at present, whilst there is an air of uncertainty with ever evolving case law surrounding the pandemic, what remains certain is the fact that there is no requirement for a landlord to act (impliedly) in good faith and whilst there may be commercial pressure to re-negotiate lease terms, there is no obligation on landlords to do so.
Force majeure and Frustration
In light of the current climate concerning Coronavirus, we have noticed a sharp increase in the number of requests by tenants, due to commercial and economic pressure to rely on clauses within their lease to bring the lease to an end. In particular, we note that leases in general, unlike construction contracts or development agreements, do not contain force majeure clauses allowing the parties to end the lease.
Rather, if prevented from occupying their premises, tenants may seek to rely on the doctrine of frustration to assist with a tenant’s ability to ‘get out’ of their lease obligations.
However, frustration can be troublesome as it is a high bar or hurdle to overcome.
In reality, a contract is frustrated if an event occurs that renders it impossible to perform an obligation or the obligation is radically different to that originally intended or envisaged when the contract was made.
At present, there are no reported cases in England where a lease has been held to be frustrated. In the context of COVID-19 in England, it would appear unlikely that a tenant could successfully argue that its lease has been frustrated, particularly if any period during which it is unable to occupy the premises is only temporary (this seems the likely scenario at the moment).
Key features of the Coronavirus Act 2020 for landlords and tenants of commercial leases
- It provides a suspension on forfeiture of commercial leases for non-payment of rent. Rent includes any amount payable under the lease
- The suspension applies as from 26 March until 30 June 2020, or such later date as may be specified. This means that, whilst the moratorium or suspension is in place, a landlord will not be able to evict a tenant for non-payment of rent
- The suspension applies to non-payment of “rent” only, not other tenant covenants. This means that a landlord could still forfeit its tenant’s lease if, for example, the tenant fails to pay the service charge or insurance rent
- It doesn’t stop the rent still being payable and leaves the tenant open to contractual or other enforcement. A landlord therefore still has its other remedies available should it wish to enforce the debt – including instructing bailiffs to effect CRAR, issuing a court claim, service of a statutory demand/insolvency process, enforcing against guarantor, drawing down on a rent deposit and so on
- Failure by the tenant to pay rent during the moratorium period is removed as a ground of objection by a landlord to a new tenancy under the Landlord and Tenant Act 1954
- Once the legislation has lapsed (currently scheduled for 30 June 2020) a landlord will be able to claim for forfeiture for both payments that became due during the moratorium period, and for any becoming due but unpaid after it ends
- The legislation does not apply to a short (i.e. not more than six months) lease. Landlords whose tenant is on a lease of 6 months or less can therefore still forfeit their tenant’s lease
If you are a landlord faced with tenant’s asking about their options or you wish to assess your own options during this trying time or if you are a tenant contemplating your next steps, please feel free to contact our Housing Team at Parker Thomas for clear, concise and independent advice on your next steps.
Call us on 0207 242 5462 or email us at mcr@alison-law.co.uk
