For many commercial tenants and landlords, 25th March 2020 was the day on which quarterly rents should have been paid. Due to the impact of Covid-19, many tenants will have found themselves unable to pay because they have had a downturn in business or have had to close premises. Many pubs, restaurants and non-food shops will be in this position. Many landlords will be feeling the impact of reduced rental income. Where rent is paid monthly, the impact will already have been felt. Most leases do not contain a Force Majeure clause so it is unlikely the tenant can use that to avoid liability for the rent due to the pandemic, but there is a small possibility they could rely on frustration of the contract.
Where a tenant does not pay rent, usually the landlord would have several options. The first option has always been for the landlord and tenant to engage with each other, and agree to defer rent, or to arrange to repay rent arrears gradually during tough periods of business for the tenant. If that approach was unsuccessful, the landlord had the option of issuing court proceedings to obtain judgment for the rent arrears (whilst allowing the tenancy to continue), or forfeiting the lease either by peaceable re-entry or by the court route. Forfeiture has the effect of ending the lease.
This week the Government announced plans to protect businesses by putting a ban on evictions for commercial tenants that miss rent payments over the next 3 months, until 30th June 2020. This means that at least until the end of June, forfeiture will not be an option for landlords and that tenants will have that window of protection. There is an expectation that this period could be extended, given that the full effects of the downturn in business will not be felt until later in the year. Evictions includes forfeiture by a court order or by re-entry. Where there are existing court proceedings for non-payment of rent, any possession date cannot be earlier than 30th June 2020. There doesn’t appear to be a need for the tenant to prove that the non-payment of rent is Coronavirus related.
This applies to business tenancies. It includes those under the Landlord and Tenant Act 1954. It doesn’t apply to licences or tenancies at will. It covers arrears of all sums due under the lease, so includes, for example, insurance rent and service charges. It only applies to rent arrears, and not to forfeiture for any other breaches of the lease. It affects lease renewals; if you were a landlord intending to oppose a lease renewal request on the grounds of persistent delay in paying rent, you may not take into account non-payment during this period.
The Government is very much encouraging landlords and tenants to come to an accommodation with each other, and it may be in both of their best interests to do so. For the landlord, although the rental income will reduce for a time, it may be better in the long-term to retain the tenant by helping the tenancy to stay in business if they have otherwise been a good tenant. The parties could agree to use any rent deposit to cover the unpaid rent, or agree on a rent-free period and then re-gear the rent after that. It is sensible to put what has been agreed in writing, and to require the tenant to declare to the landlord any Government assistance obtained. We can assist either party to come to an agreement and to record it.
Rent continues to accrue during the period, together with any interest due under the terms of the lease. The landlord’s right to forfeit will effectively be immediately restored at the end of the period (provided the lease has a right of forfeiture) because nothing done by the landlord during the period by way of concessions or rent deferrals will amount to a waiver of the right to forfeit. The government has said that it recognises the cash flow issues for landlords in addition to the problems for tenants.
Aside from rent, tenants and landlords should consider other matters in relation to the lease, for example:
- Use permitted by the lease. Has use changed, for example from a café to a takeaway?
- Planning permission for a change in use, is any additional permission or licence needed?
- Is there a lease clause requiring the business to be kept open?
- If the landlord has only let part of the building, and there are common parts and shared facilities, have their obligations to maintain these areas become more onerous, e.g. cleaning. Can these extra costs be recovered in service charges?
For help with any lease-related advice in connection with Coronavirus, contact Sarah Coates-Madden [email protected]
Landlords and tenants should also try to keep up to date with the Government advice on Gov.uk https://www.gov.uk/government/news/extra-protection-for-businesses-with-ban-on-evictions-for-commercial-tenants-who-miss-rent-payments