Covid-19 and commercial leases update
It goes without saying that Coronavirus has had a severe impact on the economy and, unsurprisingly, commercial property isn’t immune to its effects. Director and Head of Property Asset Management Gary Woodward explains the moratorium on Coronavirus-related commercial forfeiture
We’re taking lots of calls from landlords and tenants who are naturally concerned and, frankly, confused, which is understandable. The situation seems to change daily and, with the Government rushing through emergency legislation, it can be hard to keep up with the latest information.
Let’s start with paying the rent. Commercial leases usually include a clause allowing the landlord to forfeit – or end - the lease if rent is not paid within a set number of days after it becomes due. With uncertainty around income, this is obviously a worry for owners and occupiers.
On March 25, as the country began unprecedented measures, the Coronavirus Act 2020 came into force across England and Wales. The Act provides the legal basis for the current lockdown of people and businesses and ranges in scope from the food supply chain to home schooling.
Section 82 of the Act, which is significant for commercial property, states that “A right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent, may not be enforced, by action or otherwise, during the relevant period.”
The “relevant period” currently runs from March 25 to June 30, but might be extended.
In simple terms, this means that commercial tenants have a breathing space from now until the end of June. During that time, landlords won’t be able to end a lease or start court proceedings for non-payment of rent.
The definition of "relevant business tenancy" is wide enough to include all leases within Part 2 of the Landlord and Tenant Act 1954, even those that have been "contracted out" of the security of tenure provisions. But there are exceptions, including:
- a licence to occupy
- a tenancy at will
- tenancies for less than 6 months
While this is no doubt a welcome provision, it’s important to remember that the rent won’t be written off. It will need to be paid at some point. If it isn’t, the landlord will have an immediate right to end the lease when the emergency legislation ends.
The Act also highlights that “rent” includes any sum the tenant is liable to pay under the terms of the lease, such as service charges and insurance rent.
While the Act prevents landlords from evicting tenants for not paying the rent, they are free to pursue other remedies such as
- taking payment from a rent deposit
- adding interest to the debt
- exercising Commercial Rent Arrears Recovery
We would always recommend collaboration rather than litigation and suggest that landlords and tenants talk openly and honestly about their situation and expectations, now more than ever.
If you have any questions, please contact any member of our asset management team