Temporary respite—government protections for commercial tenants during coronavirus (COVID-19)

Temporary respite—government protections for commercial tenants during coronavirus (COVID-19)

Property Disputes analysis: Kate Andrews, partner at Hamlins, looks at new government protections for commercial tenants who miss rent payments during the coronavirus (COVID-19) outbreak.

What does the Act say about forfeiture of leases?

Section 82 of the Coronavirus Act 2020 (CA 2020) deals with protection from forfeiture in relation to business tenancies in England and Wales.

Subsection (1) of section 82 of the CA 2020 provides that any rights of forfeiture for non-payment of rent contained within business tenancies cannot be enforced ‘by action or otherwise’ during the relevant period which is defined as 26 March 2020 to 30 June 2020, or such later date as may be specified by the Secretary of State. Subsection (2) of section 82 of the CA 2020 confirms the landlord’s conduct during the relevant period will not amount to a waiver of the right to forfeit for non-payment of rent, save in the case of an express waiver in writing.

Section 82 of the CA 2020 deals with proceedings for forfeiture on the basis of non-payment of rent which have already been commenced in the High Court. The court may make the order for possession, but the date by which the tenant is required to give up possession to the landlord cannot be before the end of the relevant period.

Where an order has already been made requiring possession to be given within the relevant period, unless it ‘complies with some requirement’ (eg pays rent plus costs) and the tenant makes an application to vary the order, on deciding that application the court, again, cannot make an order requiring possession before the end of the relevant period. The same applies to orders made by the court under section 138 of the County Courts Act 1984, ie where possession is contingent on a failure by the tenant of the outstanding sums being paid to the landlord or into court.

Section 82 of the CA 2020 also deals with section 30(1)(b) of the Landlord and Tenant Act 1954 (LTA 1954)(persistent delay in paying rent) and confirms that when considering this ground, any failure to pay rent during the relevant period is to be disregarded.

It is notable that CA 2020 defines ‘rent’, for the purposes of section 82, as including ‘any sum a tenant is liable to pay under a relevant business tenancy’.

Will it have the intended effect?

This depends on what the government’s intended effect actually is. Politically, it seems the government wishes help tenants during a time when they are being forced to close shops, restaurants, pubs, leisure outlets, offices and other workplaces. However, what CA 2020 does not do is prevent rent during the period becoming payable once the period ends, therefore it is perhaps only delaying the effects, rather than making a substantial difference.

Further, during this time it will undoubtedly be incredibly difficult for landlords to re-let empty premises in any event, so it is questionable how many landlords would have forfeited leases during the period, even if CA 2020 had not been in force.

What risks or problems does it pose for landlords and tenants?

For landlords, the risks are relatively self-explanatory—they are likely not to receive any rental income for at least three months, as tenants will be protected from eviction. This will clearly have a detrimental effect on a landlord’s cash flow. This is likely to mean that those landlords on the brink of survival, due to the poor state of the high street and the insolvencies of tenants, may well be pushed over the edge. It is likely landlords won’t be able to meet their loan requirements and so it remains to be seen what the banks will do in this situation.

Further, given CA 2020 applies to all sums due under the lease, this may cause landlords problems in relation to payment under contracts for services to which service charge applies and they may be unable to carry out their own obligations under the lease, which in turn could cause tenants (and, indeed, other third parties) to take action against landlords.

The relevance of the reference to LTA 1954, s 30(1)(b) ought not to be underestimated; often this section will be used in conjunction with a compensation ground and therefore the inability of the Court to consider non-payment during the relevant period may impact on landlords’ requirement to pay statutory compensation to tenants.

For tenants, while on the surface CA 2020 appears to protect them, and indeed will assist tenants in relation to cash flow, as already mentioned rent continues to accrue and be payable. The specific reference to non-waiver suggests, therefore, the landlord is able to take forfeiture action immediately following the relevant period, including on the basis of sums not paid during the relevant period. The risk to tenants is, therefore, that they will simply be subject to forfeiture action once the relevant period comes to an end.

In addition, landlords may seek to use other methods of debt recovery (for example, CRAR, action against guarantors etc) against tenants and in the event tenants are unable to make payments due to a drop in profits, they may be particularly vulnerable to these methods.

What do property disputes practitioners need to pay attention to?

Property disputes practitioners should pay particular attention to the provisions in CA 2020 dealing with proceedings which have already been issued. Where practitioners act for tenants, they may be able to seek variations to orders already made in order to avoid tenants being required to give possession before the end of the relevant period. When acting for landlords, practitioners should be carefully advising as to when the relevant period ends and what action can be taken and at what time.

There may also be a knock-on effect for transactions. In a situation where there is already an order requiring possession on a date falling within the relevant period, and a sale/purchase is dependent on vacant possession, transactional practitioners should pay particular attention to whether that order will be varied by the tenant, thus affecting the transaction.

Practitioners will also need to take note of the wording relating to the LTA 1954, s 30(1)(b) when advising in relation to both new and ongoing lease renewal proceedings under the LTA 1954. Insurance policies should be carefully scrutinised to see if they assist.

Interviewed by Tom Inchley.

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