Coronavirus – Restrictions on Forfeiting a Commercial Lease

Top 10 tips for negotiating a commercial lease

The coronavirus pandemic is having a significant impact on all of us and on the UK economy.

Many businesses are unable to operate normally. They may have been forced to close and/or seen a sudden and dramatic downturn in business. This will, no doubt, have an impact on cashflow. Which in turn, may result in some business tenants having difficulty paying the rent on their business premises.

The Government has introduced some protective measures to help business tenants who are unable to pay their rent. As well as other sums due under their Lease.

The general position if a business tenant does not pay their rent

Generally, if  a business tenant does not pay their rent on time, the Lease will give the Landlord the right to re-enter the premises and ‘forfeit’ the Lease, i.e. the Landlord has the option to end the Lease and take back possession of the premises.   Providing the premises do not include residential premises, a Landlord can generally take this action without obtaining a court order.

The new protective measures – a ban on forfeiture

The Coronavirus Act 2020 came into force on 26 March 2020 and provides that for the period from 26 March 2020 to 30 June 2020:-

The protection applies to all ‘relevant business tenancies’.  This includes all tenancies under Part II of the Landlord and Tenant Act 1954 and, in our view, probably tenancies that have contracted out of the 1954 Act.

In addition, all court proceedings for possession under CPR Part 55 (which generally include forfeiture proceedings) and all proceedings seeking to enforce an order for possession have been stayed for 90 days from 27 March 2020.

Be aware

This help will be welcome news to business tenants who are in difficulties paying their rent.  It gives them a short period of time to organise matters but the help offered is very limited.  It does not release the tenant from their obligation to pay their rent or other sums that are due under the Lease. i.e. it is not a rent deferment or rental holiday scheme.  Such payments are still payable on the due date and, if the tenant is late in paying, interest is likely to accrue under the terms of the Lease.

The protection only suspends the Landlord’s right to forfeit the Lease/evict the Tenant for a limited period of time.  When the moratorium ends (currently 30 June but this date may be extended) if such sums remain unpaid then the Landlord will be entitled to then take action to forfeit the Lease and evict the Tenant.   Also, there are no restrictions on the Landlord to taking other types of enforcement action. For example, serving a Statutory Demand (this is a precursor to bankruptcy proceedings), issuing court proceedings or taking commercial rent arrears recovery (CRAR) action.

Practical advice

Tenants who think they will have difficulty paying their rent or sums due under the Lease on time, should contact their Landlords at an early stage. They should have an open conversation  with them to see if they can reach an agreement regarding the rent/other sums due under the Lease.  For example, agreeing the rent is paid monthly instead of quarterly, agreeing a temporary rental concession or rent reduction.  Landlords would also be wise to ‘check in’ with their Tenants to see if there are likely to be any issues.

If the building is unoccupied Landlords and Tenants should ensure that any requirements of the insurers are complied with.

As with rent arrears, Landlords may  wish to consider withdrawing money under a rent deposit, if one is held.

If there is a Guarantor, the Landlord may wish to serve a Section 17 Notice on the Guarantor and/or any former tenant who remains liable in respect of the rental arrears under. For example, an Authorised Guarantee Agreement (AGA).

We advise both Landlords and Tenants. If you would like advice regarding the options open to you, please contact us to arrange a telephone/video appointment.

Please note the above is for information purposes only and is intended to be a short summary.  It should not be treated as a comprehensive guide and should not be acted on without qualified legal advice.

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Author: Jacqueline Penfold. Litigation and Employment, Partner