Business Tenants protected from Forfeiture by the Coronavirus Act 2020

The Government has passed emergency legislation – the Coronavirus Act 2020 – which went through Parliament in one day on 25th March. It provides business tenants with immediate protection from forfeiture by landlords for non-payment of “rents”.

What is the protection?

The government has given business tenants immediate protection (a Moratorium) from forfeiture for non-payment of “rents” (see below). The Coronavirus Act gives a period of protection which will run to 30th June 2020, or any later date the Government decides. Given the current closures and lockdown, it seems likely that that date will be extended, potentially to avoid immediate forfeiture on 1st July for non-payment of the June quarter’s rents.

What does the Moratorium cover?

The Moratorium on forfeiture only applies to non-payment of “rents”, which is defined as “any sum a tenant is liable to pay under the relevant business tenancy”. Aside from the core rent payable under a lease, it seems that this wording will also include any other payments due, whether reserved as rent or not e.g. insurance or service charges. The Moratorium does not prevent action for other breaches of a lease.

Who is protected?

Most tenants of business premises are protected. The definition of business premises is the same as that used in the Landlord and Tenant Act 1954 and so includes all tenants not excluded from that Act. A lease will set out whether or not it is excluded, but this definition may include others who do not have a lease. The applicability is wide, and most business tenants/occupiers will be protected from forfeiture under the Moratorium.

What does this Moratorium Stop?

The landlord of a business premises will not be able to exercise the self-help right of forfeiture i.e. go in to the premises, change the locks, and recover possession. Equally landlords will not be able to enforce any existing Court proceedings e.g. an Order for Possession. Practically speaking, the Moratorium stops landlords from bringing the lease to an end by forfeiture.

However, the Moratorium is simply a suspension of a Landlord’s right to forfeit, it does not take away that right. The Moratorium does not stop a tenant from having to pay all rents as they fall due and comply with the other covenants of a lease (unless contrary agreement is reached between the parties to vary its terms).

What can a landlord do during the Moratorium?

The Coronavirus Act suspends forfeiture but does not stop other recovery methods for unpaid sums under the lease. Options for a Landlord may include:

• issue Court proceedings for non-payment of rent or other sums due under the lease, likely including interest and legal costs. Obtaining Judgment will crystallise the debt, and as and when forfeiture can be carried out, will lessen the risk of a tenant securing relief (Note: Courts are operating but with reduced capacity);
• take the insolvency route- serve a statutory demand in relation to non-payment of rent or any other sums due under the lease which are not (and cannot) be disputed or proceed straight to a winding up petition;
• issue Court/Tribunal proceedings for determination of other breaches of covenant under the lease aside from rent, to prepare for forfeiture by way of service of a S.146 Notice (Note: Tribunal hearings are currently suspended)
• While CRAR (seizing goods to the value of the arrears) may be considered, there are practical issues e.g. as to access with premises closed, and a danger of breaching this new legislation. Landlords should be wary of this option.

Tenants should be aware that their lease remains as a contract and its terms need to be met. Tenants not paying their March and/or June quarter’s rent because of the Moratorium may feel the consequences as soon as it is lifted. Those tenants thinking in the longer term should be contacting their landlord or their appointed agent to discuss options and agree a way forward.

Some major landlords have waived rents for March, others have rolled them forwards to review in June or September, others have offered a change to monthly payment so cash flow can be monitored.

However, there is no obligation upon a landlord to vary the terms of the lease: the rents still fall due, interest may accrue, and landlords are likely entitled to the costs of recovery of any unpaid rents. Ultimately landlords remain and will be entitled to their premises back, if they so wish, the only question is when.

For more information please speak to Ben Lomer at b.lomer@druces.com or +44 (0)20 7216 5570 or to your usual Druces contact.