Coronavirus: New Coronavirus legislation will give commercial tenants protection from forfeiture for unpaid rent
In usual circumstances, if a tenant defaults on payment of rent, most leases provide for the landlord to be able to terminate by way of forfeiture if the rent remains unpaid for a certain period after its due date (often 14 or 21 days). The landlord can bring this about by peaceably re-entering the premises and changing the lock, which brings an end to the lease, so that the tenant is evicted. Although a tenant can apply to Court for the lease to be reinstated, forfeiture is generally a very effective method for the landlord to deal with a defaulting tenant.
With the March quarter day imminent, the government has acted to provide temporary protection for tenants, so that when the new Coronavirus Bill is passed (which is likely to take place later this week), landlords will not be able to forfeit commercial leases until the moratorium ends. The initial moratorium will run until 30 June 2020 and will be reviewed, so there is a possibility that the moratorium will be extended beyond that date and impact on June quarter rents also.
The relevant provisions can be found at Section 82 of the Coronavirus Bill and will apply to all “relevant business tenancies.” During the period of the moratorium, landlords will not be able to forfeit on the grounds of unpaid rent or any other sums due under the lease. The rents will continue to accrue under the terms of the lease and there is provision that no step taken by a landlord will waive the breach for non-payment of rent, save for an express waiver in writing.
Other methods to recover the overdue rent are still available during this period, but these would need to be carefully considered in light of the tenant’s likely financial position and the delays that may be experienced in the court process. If the tenant is in breach of obligations under the lease (other than payment of rent) the usual steps involving the service of a notice can be taken to invoke the forfeiture procedure. However, it may be appropriate to proceed with these steps and serve the relevant notices to ensure that the problems (for example, in relation to repairs) do not escalate.
We have already seen tenants approaching their landlords with requests for a suspension of rent or to switch payments to a monthly basis. The temporary restrictions on enforcement are plainly intended to persuade landlords to be co-operative in responding to such requests, however we recommend that any temporary concession that a landlord may be tempted to give should be properly documented and drafted to ensure that it does not vary the existing obligations under the lease.
If you have any queries in relation to the above, or need advice in relation to a potential forfeiture or assistance in the drafting of a rent concession, please contact a member of the Commercial Property or Property Litigation teams.
In the first instance if you need any advice from us, please either email or call your usual contact. If you experience any difficulty in reaching them, please get in touch with us on 0114 276 5555 or email firstname.lastname@example.org to be put in touch with the relevant department.