Commercial Property Leases
30th March 2020
We are in a fast moving and unprecedented situation which is putting significant strain on the majority of businesses and their employees.
Updated information on the COVID-19 pandemic and the UK’s response are provided on a daily basis from the Government and specialist organisations.
As a result, this briefing is subject to any subsequent changes in Government advice, particularly in the event of any further restrictions on social distancing/isolation and lockdown.
This general briefing has been prepared to assist all of our commercial property clients. It is not intended to represent comprehensive advice but is intended to help businesses access information and resources that may assist them in these challenging times.
There are a variety of different measures and schemes available to businesses, not all of which are available to all, and details of which are available in our Company Commercial team’s briefing note.
This briefing note deals with the impact of the Coronavirus Act 2020 on commercial property. A separate briefing note is available which will relate to residential property only to avoid confusion.
Coronavirus Act 2020 Who does the Act apply to?
A “relevant business tenancy” is set out in subsection 12. The provisions are for all commercial tenancies which have protection under Part II of the Landlord and Tenant Act 1954, or importantly would have protection under the 1954 Act, save for being specifically excluded.
It does not appear to apply to commercial licences, nor does it extend to Farm Business Tenancies.
Ability to forfeit leases
Section 82 of the Coronavirus Act 2020 sets out various protections (from a tenant’s perspective) and bars on forfeiture (from a landlord’s perspective):
1. A landlord cannot peaceably re-enter or commence forfeiture proceedings based on rent arrears from the day after the date of assent (26 March 2020) until the end of the relevant period (which is currently 30 June 2020). A statutory instrument can be made to extend the “relevant period” if required.
2. A landlord who has current proceedings for forfeiture in either the High Court or the County Court, cannot now obtain possession of the property from the tenant until after the expiry of the relevant period (30 June 2020 or later if extended). The relevant provisions of the County Court Act (s.138) and the High Court’s inherent jurisdiction are therefore amended.
3. Any current possession order (based on rent arrears) which is yet to have been enforced, is now automatically deemed to have been extended until the end of the relevant period (30 June 2020 or later if extended by statutory instrument).
4. Any acts during the relevant period, by the Landlord (or his/her/it’s agents) are incapable of amounting to a waiver of the right to forfeit. This is quite interesting, and practically may cause considerable arguments in courts in the long run. Any landlords unsure of the impact of this provision need to seek independent legal advice.
5. Any rents due during the relevant period, still are payable (and rents under Coronavirus Act are defined as any sum (presumably including insurance, service charges and all other charges) due under a business tenancy.
What can a Landlord do if a tenant cannot pay the rent in full?
Under the Act, any ability of forfeit is effectively postponed, but the right to forfeit remains uncompromised. The point made at paragraph 4 (effectively removing waiver from forfeiture proceedings) introduces an interesting anomaly.
The right to forfeit is a right of election, namely that the landlord, on becoming aware of its right to forfeit, as to elect to either forfeit the lease, or alternatively to accept it continuing and thereby waiving its right to forfeit (but not waiving the breach altogether).
What then, if a landlord demands some rent falling due during the relevant period (e.g. June’s quarter’s rent) notwithstanding that there are pre-existing rent arrears from the quarter day immediately passed.
Many questions arise from various scenarios similar to the above, but there is little clarity on a complex area at the moment.
Landlords are not prevented, on the face of it, from issuing proceedings, using CRAR, or issuing a statutory demand to recover rent due, and in doing so, if the legislation is as effective as it is intended to be, if the sums are not paid in full, a landlord could still forfeit by peaceable re-entry if some or any of the rent remains outstanding.
Landlords and tenants alike are in unchartered territory here, and this area will no doubt be covered thoroughly in future case law.
Landlords will want to consider whether there is likely to be a market downturn in the future after the Covid-19 pandemic is resolved, and if so, the impact there may be on yields if tenants are harder to come by during that potential period. It may well be that notwithstanding Landlord’s armouries are relatively unaffected, that a tenant in possession is worth two in the future.
For links to further useful information you may like to see:
For more information and queries please contact:
- Covid-19 Guidance
- Residential possessions claims during the pandemic guidance
- Assistance with Moving House and Property Guidance
- Immigration - Entry clearance to the UK
- Right to Rent Checks and Covid-19: Temporary Change
- Immigration - Tier 2 visa workers guidance
- Foreign Nationals and the furlough scheme guidance
- Immigration sponsorship guidance for employers
- Parenting separately
- Commercial Property Leases
- Residential Tenancies
- Financial Assistance for Self-employed Individuals
- Financial Assistance for Businesses