The Coronavirus Bill is currently making its way through Parliament, having passed through the House of Commons yesterday. The Bill will be heard in the House of Lords today (24 March 2020) with a view to pushing towards Royal Assent as soon as possible.
The Government has committed to helping businesses who are commercial tenants affected by the pandemic. The Bill lays out an important set of provisions for business tenancies in support of that notion, incorporating the following significant restrictions on landlords:
- 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; and
- During the relevant period, no conduct by or on behalf of a landlord, other than giving an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture under a relevant business tenancy, for non-payment of rent.
The relevant period is currently defined as “beginning the day after the day the Act is passed” through to 30 June 2020, however this can be extended.
A relevant business tenancy is defined as “a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies, or a tenancy to which that part of that Act would apply if any relevant occupier were the tenant”. This is quite a strange definition, appearing at initial sight to catch secure 1954 Act tenancies only with some blurring round the edges. It seems highly unlikely that this is what Parliament intends, leaving the business tenants on 1954 Act-excluded leases (often the smaller tenants) exposed to forfeiture, and it is to be hoped this important point is clarified before the legislation is finalised.
Forfeiture for Non-Payment of Rent – the current position
A standard commercial lease normally provides that if a tenant has not paid its rent for 21 days after the due date, a landlord can forfeit the lease and take possession of the property without giving any notice to the tenant. This can be done by peaceable re-entry or court proceedings.
The right to forfeit is subject to the landlord not waiving its right to forfeit (by treating the lease as continuing after the right arose). Waiver is a complicated area, historically giving rise to considerable case law. Landlord acts like accepting or demanding arrears, granting consents, serving repairs notices, and (critically here) negotiating future instalment payments or rent reductions etc would all waive the right to forfeit, meaning that the landlord would lose his right until there was another breach.
What does the Bill do?
The Bill states that a landlord cannot forfeit the lease/take possession of the property during the relevant period for non-payment of rent (or any other sums due under the lease, such as insurance monies or service charge). It is likely that this will apply to arrears already due, not just the March quarter payments.
Secondly, landlords can only waive their right to forfeit by explicitly doing so in writing. No doubt this is to encourage open dialogue between landlords and tenants to discuss these issues and reach amicable arrangements for settling arrears.
Furthermore, if proceedings are currently ongoing, the Courts are precluded from making an order requiring the tenant to give up possession of the property during the relevant period.
The upshot is that (if the Bill gets passed) a commercial tenant cannot be evicted (for non-payment of rent or any other monies due under the lease) before 30 June 2020.
Legal Position during the Relevant Period?
It appears that the obligation to pay rent is not removed or varied by the Bill, so the financial obligation remains and if unpaid, will still need to be dealt with.
The Bill will prevent evictions during the relevant period, but it stops short of limiting the host of other landlord remedies for non-payment of rent. As such, landlords can still consider the following, and tenants should be aware of this:
- Commercial Rent Arrears Recovery (CRAR). This allows a landlord to instruct an enforcement agent to take control of a tenant’s goods and sell them in order to recover the rent arrears;
- There may be a guarantee, an AGA or a rent deposit that the landlord can use; and
- A landlord can serve the tenant with a statutory demand (which is the first step in bankruptcy/winding up proceedings).
Will it Work?
This is emergency legislation and leads to several uncertainties, however the message from the government is loud and clear: businesses need a breathing space – work together and ensure the country can get back up and running quickly once the restrictions are lifted. Presumably the Courts will look to echo that message if and when this legislation is ultimately tested.
NB - Bill has not yet received Royal Assent, and as such, the above may be subject to some slight change.
Our Property Litigation team is on hand to help, please get in touch if you have any questions.