A guide for commercial landlords and tenants
As a result of the ongoing public health crisis, the Government has stated that “commercial tenants who cannot pay their rent because of Covid-19 will be protected from eviction.” The Coronavirus Act 2020 has been passed into law and this article aims to provide information on some of the protection offered by the act.
These rules apply to business tenancies for terms longer than 6 months. The new rules do not apply to certain excluded tenancies, such as Farm Business Tenancies.
Is my Tenant still required to pay rent?
Yes – the legislation does not provide tenants with a rent holiday. Rent payments should be made unless specifically agreed otherwise between landlord and tenant.
My Tenant has stopped paying rent. Can I end the lease?
Most commercial leases will contain a provision allowing the landlord to forfeit the lease and take re-possession of the property if the tenant is in rental arrears of more than 21 days. The Coronavirus Act 2020 prevents the landlord from enforcing this right until at least 30 June 2020. It also prevents the landlord from forfeiting on the basis of non-payment of any other monies from the tenant, such as insurance rent or service charge.
These payments remain due and will need to be paid. If the tenant does not pay, then the landlord can forfeit the lease once the emergency legislation expires or take other enforcement measures (see below).
Landlords and tenants are however encouraged to discuss how any non-payment can be resolved in both parties’ interests. During this period, landlords will not be seen as having waived their right to forfeit (unless they expressly say they are waiving their right). There is no harm in having these discussions with the tenant.
Most landlords will not want to lose a tenant who otherwise has a good record of payment and will not want to take on the responsibility for any business rates at a time when it may be difficult to quickly locate a new tenant. Refer to our other article on how this can be managed (https://www.progressionsolicitors.com/how-do-i-manage-commercial-rent-during-lockdown/)
A right to forfeit the lease based on any other breaches of the lease can still be exercised during this time.
What other steps can I take as landlord?
A landlord will be able to make a claim against the tenant and/or a guarantor for recovery of the debt owed. The landlord will also be able to add interest to this debt under the terms of the lease.
Alternatively, the landlord may be able to make a statutory demand for payment of the debt. This will provide the tenant with 21 days to either pay the debt, reach an agreement with the landlord or apply to set-aside the demand. If the tenant does not respond the landlord may be able to apply to either bankrupt an individual or close the company, depending on the type of tenant. This will potentially bring the lease to an end or allow the landlord to forfeit the lease.
Please bear in mind that there may be additional practical difficulties. In particular, the courts are currently extremely busy and it may not be possible to obtain a hearing date whilst the lockdown and social distancing rules are in place.
The lease is coming to an end. Can I (landlord) terminate it?
Except for the new rules on forfeiture, leases can be terminated in the usual way. We are unable to set out the various steps which must be taken here but if you require advice in relation to your specific lease then please contact us for help.
If the tenancy is a secured business tenancy under the Landlord and Tenant Act 1954, a landlord can continue to serve the relevant notices and bring proceedings against the tenant. However, the Coronavirus Act 2020 states that any failure to pay money due under the lease between the 26 March 2020 and 30 June 2020 cannot be used as a ground for terminating the tenancy. The landlord will need to rely on either previous arrears or another ground.
For further assistance, please contact us on 01229 580956
What other help is available?
Official guidance and links to other support articles can be found here https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
The situation is constantly changing and the Government may bring in further guidance in due course. However, this post represents our best interpretation of HM Government’s guidance, where applicable, at the time of our writing. Both the content of the post and any guidance it is based upon will be subject to change.