Coronavirus (COVID-19): Government further extends protections for business tenants

Forfeiture of commercial leases

The announcement, made by Communities Secretary Robert Jenrick on 16 September, means businesses most in need of additional support will be able to remain in their premises without the threat of eviction for the rest of this year.

Commercial Rent Arrears Recovery (CRAR)

The government will also extend the restriction on landlords’ abilities to use Commercial Rent Arrears Recovery (CRAR) to recover unpaid rent on commercial leases until the end of the year, and emergency legislation is promised preventing landlords from serving statutory demands and issuing insolvency proceedings.

The guidance is clear that, where businesses can pay their rent, they should do so. Landlords and tenants should continue to work together to agree rent payment options. Tenants who have been taking advantage of the moratorium should also be mindful that if they plan to exercise a break clause there may be a requirement that the rent must be paid up to date in order for the break to be effective.

Guidance

Laura Offer, a solicitor in Steele Raymond’s property litigation team, commented:

“It is important that both tenants and landlords remember that this is only a suspension of the landlord’s right to take certain enforcement actions and will not write off any of the tenant’s liabilities. Rent remains payable, and still falls due on the same date provided for in the lease, so even if the landlord cannot take the property back for the time being, interest is likely to be accruing on a daily basis in the meantime. That interest can often be set at a higher rate than many commercial bank loans, so a tenant who takes advantage of this legislation to avoid paying its rent where it is not absolutely necessary is somewhat short-sighted.

“Most leases also include a provision which allows a landlord to claim back its legal costs and expenses incurred in connection with any breach of the lease or failure to pay rent, so tenants should be wary of abusing their position during the forfeiture moratorium. If lines of communication with their landlord are not kept open, and the landlord considers it necessary to take legal advice in relation to its options, the tenant’s ultimate liability is likely to have a far more significant impact on the profitability of its business than the initial gain in deferring payment.

“Landlords, likewise, should take heart that, whilst they are unable to take any immediate action to recover their premises, there are still plenty of other options. If advice in relation to those options becomes necessary, those costs are usually recoverable from the tenant (subject to the provisions of the lease).

“Finally, while forfeiture by re-entry is off-limits for the time being, there is nothing stopping landlords and tenants who do have a co-operative relationship to agree a voluntary surrender of the property, which is sometimes a very attractive option for both parties. Surrender should usually be effected by way of a deed, and a solicitor will be able to ensure that the deed properly deals with all of the ancillary matters like dilapidations, the arears and treatment of any deposit.”

– You can access the Code of Practice for commercial property relationships during the COVID-19 pandemic here.

– For more information on what these changes mean for businesses, take a look at our article: Coronavirus (COVID-19): What do the extended government protections mean for businesses?

*The information set out in this article is correct at the date of publication (24 September, 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. Visit our Coronavirus (COVID-19) Hub for more Leading Insights.

Contact us

If you have any questions regarding the impact of the Coronavirus upon your business or are seeking up-to-date legal advice on property dispute matters, contact Laura Offer on 01202 294 566 or email [email protected]. Alternatively, contact a member of our Commercial Property team in Bournemouth.