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UK COVID-19: Commercial tenants to be given three months’ protection from forfeiture

Yesterday, as well as locking down the country, the government published critical amendments to the emergency Coronavirus Bill protecting commercial tenants from the risk of forfeiture until the end of June 2020.

The Bill, together with these amendments, has now been approved by the House of Commons and is, today, going before the House of Lords.

Prohibition on forfeiture

The Bill provides that a right of forfeiture “under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period”.  This amounts to an absolute prohibition on a landlord forfeiting for non-payment of rent, with no clear mechanism for assessing whether the non-payment relates to COVID-19 or not.

Therefore this legislation allows any commercial tenant, whether in the retail and leisure sectors or otherwise, and no matter what their financial position, the opportunity to avoid paying the March 2020 quarter’s rent, and any other rent payments falling due up to the end of June 2020, without risk of forfeiture (follow the link here for more information on the right to forfeit).

The landlord’s right to forfeit is effectively suspended.  Therefore, provided the landlord has not given “an express waiver in writing”, a landlord will still be able to forfeit for non-payment of rent that falls due if it is not paid after 30 June 2020.

Forfeiture proceedings

If a landlord has already started forfeiture proceedings for non-payment of rent, then the courts will not be able to order that the tenant has to give possession before 30 June 2020.

Further, if the court has already ordered possession for non-payment of rent, and the date for possession falls before 30 June 2020, the tenant will be able to apply to vary the court’s order to postpone the possession date until after 30 June 2020.

A landlord who has issued forfeiture proceedings for non-payment of past rent, which was unrelated to COVID-19, will still be caught by these provisions.

Renewal of business tenancies

A landlord shall not be entitled to rely on the tenant’s non-payment of rent during the relevant three month period to oppose renewal of a business tenancy under the Landlord and Tenant Act 1954.  Non-payment of rent is rarely used as a ground for opposing renewal; therefore, in reality this will probably have little effect.

Other remedies

Crucially the proposals do not appear to prevent landlords taking other action against a tenant for non-payment of rent because the proposals only suspend a landlord’s right to forfeit; they do not suspend a tenant’s obligation to pay rent.

This could include serving a statutory demand prior to a bankruptcy or winding up petition, issuing court proceedings for payment or taking steps to take control of a tenant’s goods under the Commercial Rent Arrears Recovery (CRAR) regime.  However, given the lockdown that has been announced, it may be difficult to exercise CRAR as the premises in question should be closed.

The Bill also does not appear to stop time running for the accrual of late payment interest on any arrears that fall due under the lease.

What does this mean for landlords?

Forfeiture is one of a landlord’s most powerful remedies to enforce non-payment.  However, in the current climate, where it would be extremely challenging for a landlord to find a new tenant for empty premises, forfeiture is not necessarily an attractive option.

Landlords may find that tenants that were previously eager to agree rent deferral deals for the March 2020 quarter now simply rely upon their statutory rights, or at least take a harder line in such negotiations.

As currently drafted, however, the Bill does not prohibit landlords from taking other action to recover unpaid rents, or forfeiting for non-payment of other charges due under the lease.  It also means that all unpaid rents (which for most commercial tenants means the whole of the March and June 2020 quarters’ rents) will become enforceable by forfeiture in three months’ time, when quite possibly the trading environment for tenants will not have significantly improved.  It may, therefore, still be sensible for landlords and tenants to agree commercial terms between them for dealing with the March 2020 quarter’s rent, including what will and will not be paid, when it will be paid, whether interest will accrue and what rights the landlord will forgo in the meantime.