As restaurants, cafes, pubs and all non-essential shops across the country close in response to the Coronavirus crisis, tenants and landlords are equally feeling the strain.
Most commercial premises are occupied under a lease and under the terms of the lease rent will be payable. If the rent is not paid, the tenant will be in breach of the lease and ordinarily the landlord will be entitled to forfeit the lease by re-entering the premises or by bringing possession proceedings.
With no income due to forced closure, tenants may not have the financial ability to pay the rent. On 27 March 2020 the Government passed the Coronavirus Act 2020 which includes, at Section 82, a moratorium in respect of forfeiture for non-payment of rent under relevant business tenancies for a period of 90 days.
The protection applies to a wide range of commercial premises including mixed use. ‘Rent’ includes any financial payment due under the terms of the Lease (including Service Charges). The moratorium simply means that forfeiture action cannot be taken for non-payment between the period 27 March 2020 and 30 June 2020. The tenant is still obliged to pay the rent during this time and is required to comply with all other terms of the lease.
If the tenant does not comply with the other terms of the lease, the landlord is at liberty to forfeit the lease during the moratorium for any other breach. Many leases will include a requirement for the premises to be occupied, however with forced closure, social distancing and the guidance not to attend the workplace unless absolutely necessary, many premises will be empty and this may give rise to forfeiture action.
All other remedies in respect of non-payment remain available to the landlord, so tenants and guarantors can be served with statutory demands or face debt recovery claims and Commercial Rent Arrears Recovery (CRAR) still remains an option. Landlords may want to strike first if they are concerned that the business tenant will be pursued by other creditors for debts which may accrue during this period.
When the moratorium expires the landlord will be entitled to forfeit the lease for non-payment of all accrued arrears. When business are permitted to reopen, they will no doubt need to re-establish themselves and may not have the financial ability to immediately clear any accrued rent arrears. This could lead to immediate forfeiture action should the landlord be so inclined.
‘Protection’ is therefore used in very loose terms. Staying the ability to forfeit the Lease for non-payment of rent during the 90 day period may simply be delaying the inevitable. That being said, if a landlord were to forfeit at this time, the prospects of finding a replacement tenant are likely to be very limited while ever the guidance to stay at home remains in place.
With such uncertainty landlords and tenants are encouraged to start an early dialogue, but to exercise caution over any ‘terms’ that they may think sensible to agree or vary. It will be sensible to take legal advice on the options available eg on negotiating a rent reduction or a rent free period, with a view to averting a further crisis (in financial terms) once the Coronavirus crisis has eased.
Whether you are a Landlord or a Tenant, should you require any advice or assistance on the impact of the Coronavirus crisis please contact one of our Property Litigation specialists who will be happy to discuss your position. For more information, please contact Healys LLP on 0800 2800432 or email us at firstname.lastname@example.org.