7 April, 2020
The Coronavirus Act 2020 (the 'Act') received Royal Assent on 25 March 2020 and attempts to alleviate the financial pressures on both tenants and their landlords. The Act temporarily alters the rules surrounding possession and forfeiture proceedings for both residential and commercial tenancies.
During lockdown, the government aims to ensure those unable to pay their rent, potentially due to redundancy or sickness, are not forced out of their accommodation. This is achieved, in section 81 and schedule 29 of the Act, by extending the notice period for possession proceedings to 3 months. Any landlord wishing to serve notice between 25 March and 30 September 2020 must now give 3 months’ notice. The government may review the 30 September 2020 date and has provided the ability to do so in the Act.
In turn, to protect the financial position of the landlord in this scenario, the government has also announced a 3-month mortgage payment holiday will be available. The provisions effectively pause both landlord and tenant’s financial obligations to the bank.
However, the Act achieves a postponement rather than a cancellation of the obligation to pay rent. Similarly, interest will continue to accrue during the period of any mortgage payment holiday. Therefore, the caveat is these sums will need to be repaid at some point. Both tenant and landlord will need to collaborate on achieving the rent repayments in a manner that both can afford. Landlords may wish to offer payment breaks or consider an instalment plan. Landlords can still initiate eviction proceedings now, although there are now stricter rules on the contents of the notice, and they will have to wait 3 months before proceeding. There are therefore concerns the measures simply delay the problem.
We recommend that Landlords and Tenants collaborate closely during this period. Landlords – you do not need to wait 3 months or until September 2020 to take action. You may need to make your mortgage payments within 3 months, unless further holidays can be agreed with your bank. Tenants – you need to be considering measures to allow you to make your rent payments in as soon as 3 months.
Section 82 of the Act provides that the rights of re-entry and forfeiture under business tenancies for non-payment of rent may not be enforced by action or otherwise until 30 June 2020. This excludes proceedings already started before 25 March 2020. Again, there is a provision allowing extension beyond 30 June 2020. There is no corresponding provision in relation to any other breach (other than non-payment of rent).
Importantly, no conduct of a landlord during this time, other than express waiver, will waive their rights of re-entry or forfeiture under the relevant tenancy for non-payment of rent. “Rent” is to be construed broadly and includes any sum the tenant is liable to pay under a relevant business tenancy. The government have confirmed the provisions are intended to cover all commercial leases where the property is occupied.
The legislation has dragged up a lot of questions surrounding, for example, sub-tenant and tenant consent to forfeiture. Landlords need to be clear on the new process to avoid an ineffective forfeiture. Understanding and compromise are then going to be key when the relevant period ends, to reach mutually beneficial agreements in such strenuous times.
Alongside the pandemic, your legal rights and obligations are changing at a fast rate. The new legislation needs proper consideration should you be landlord or tenant. Steele Raymond LLP are here to help clarify your position and help you negotiate a way forward.
*The information set out in this article is correct at the date of publication (07 April, 2020). The effect of coronavirus on businesses is a fast-changing area and so it is important to obtain legal advice to ensure you are properly protected.
If you have any questions regarding the impact of the Coronavirus upon your business or are seeking up-to-date legal advice on property matters, contact Amelia Williams on 01202 294 566 or email AmeliaWilliams@steeleraymond.co.uk.
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