With all non-essential businesses in the UK forced to close to prevent the spread of coronavirus, many commercial landlords and tenants are facing considerable challenges.
The Times reported last week, for example, that London’s largest provider of serviced office space had collected just 50 per cent of March rents. It is illustrative of the national picture: lockdown conditions have stunted income for swathes of commercial tenants, whilst landlords are taking a corollary hit on rent collection.
The government has sought to address these challenges in the Coronavirus Act 2020. Here are five things commercial landlords and tenants need to know about the new legislation:
For a period of three months, effective from 26 March 2020, landlords will not be entitled to forfeit business tenancies for non-payment of rent.
This means that business tenants cannot be forced from their premises for a failure to keep up with the rent (or any sum payable under the lease) until 30 June 2020. The government may extend this period if necessary.
Where a landlord has already taken out possession proceedings based on rent arrears accruing prior to 26 March 2020, the court will not make an order for possession until after 30 June 2020.
Even where a possession order has already been made and is due to take effect before 30 June 2020, tenants are still protected. This is because the legislation provides that the date on which tenants must vacate pursuant to this order shall be extended until after 30 June 2020.
No action by a landlord during this period (other than express waiver in writing) is to be regarded as waiving a right of forfeiture for non-payment of rent.
This means that, after 30 June 2020, landlords will be at liberty to forfeit the lease for rent arrears in the usual way, even if they have made rent demands or otherwise recognised the lease as continuing. Note, however, that any act amounting to waiver on the landlord’s part after 30 June 2020 will be an effective waiver.
Though landlords are prevented from forfeiting on grounds of non-payment of rent until after 30 June 2020, other remedies remain at the landlord’s disposal throughout the three-month period. Landlords might elect to take payment from a rent deposit, for example, or institute debt recovery proceedings or Commercial Rent Arrears Recovery (CRAR). Landlords may also add interest to the debt in accordance with any interest provisions in the lease.
Of course, certain practical difficulties associated with the present circumstances may prevent a landlord from pursuing some of the available remedies. Further, court proceedings are unlikely to be appropriate where the arrears have arisen solely as a result of the pandemic.
Nevertheless, landlords and tenants are best advised to discuss the position with one another at as early a stage as possible in order to come to an understanding. Any special arrangements that are made between the parties should be documented formally to avoid future disputes.
Though the new legislation proffers some degree of protection for commercial tenants, there is nothing to suggest that breaches other than non-payment of rent will go unchallenged, including by way of forfeiture.
Tenants are therefore advised to adhere to the tenant covenants in their lease to avoid unnecessary disputes.
Of course, lockdown conditions can make compliance with certain tenant covenants more difficult than under ordinary circumstances.
If you have any questions regarding the impact of the Coronavirus upon your business or are seeking up-to-date legal advice, contact Chris Twaits on 01202 294 566 or email [email protected]. Alternatively, contact a member of our Commercial Property team in Bournemouth.
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