COVID-19 – What does this mean for commercial landlords and tenants?
Coronavirus Act 2020
The Coronavirus Act 2020 (“the Act”) came into force on 25th March 2020 which, amongst other significant measures, has given some security to tenants of commercial units who are unable to pay their rent over the coming months because of COVID-19. Landlords cannot take immediate possession action, thereby affording tenants some protection from eviction.
Most commercial tenancies contain a contractual provision which allows the landlord to take back possession of the premises and terminate the lease, if the tenant falls into rent arrears after a certain amount of time, after the rent becomes due. This is typically 14, 21 or 28 days, depending on what was agreed at the time of the grant of the lease.
Eviction action where you are dealing with a purely commercial property usually involves immediate possession action by the landlord or its agent, by:
- Attending the premises;
- Changing the locks; and
- Securing the property to prevent a tenant from re-entering.
However now, under section 82 of the Act, commercial tenants who cannot pay the rent due will be protected from any eviction proceedings due to non-payment of rent until at least 30th June 2020. There is the option for the government to extend this period, if needed. In addition, any ongoing possession claims due to non-payment of rent will be adjourned until 30th June 2020.
So what can a landlord do to recover rent during this period?
It is important to note that the protection afforded to tenants only relates to possession action for non-payment of rent and other sums due under the lease. Therefore, landlords are able to forfeit a commercial lease for any other reason permitted under the lease.
The following remedies are also still available to landlords during this period for the non-payment of rent:
- A debt claim in the County Court against a tenant or guarantor (where appropriate);
- Commercial rent arrears recovery (CRAR);
- Statutory demands.
If there is a rent deposit, the landlord is also able to recover the arrears from the deposit depending on the terms of the rent deposit deed.
What does this mean for tenants?
The Act merely delays any possession action by the landlord. It does not absolve the tenant from liability from paying the rent and the rent will still be due. Also, it does not remove the landlord’s right to take other types of enforcement action as referred to above.
Should the tenant fall behind on rent payments during this hiatus, a landlord is able to forfeit the lease for that breach and bring possession proceedings against the tenant, once the suspension has been lifted. Although the usual rules will apply and the landlord will need to ensure it does not waive the right to forfeit during this period.
Therefore these restrictions, in reality, are only causing some delay for landlords and some respite to tenants.
It has been reported that, even with the help from the government schemes, nearly a fifth of all small and medium-sized businesses in the UK are unlikely to find the liquid funds they need to survive the next few months.
It is now a sensible time for landlords and tenants to engage in voluntary discussions and see if they can agree a reduction in rent over this period or, in some cases, even a rent break. If any agreements are reached by negotiation, it is wise to agree these in the form of a side letter to the lease so that the parties are clear as to where they stand and what their respective rights are after this period.
You can also contact one of our other solicitors in the Property Litigation team here.