COMMERCIAL LEASES AND COVID-19
COMMERCIAL LEASES AND COVID-19

27 March 2020

Government’s Protection from Eviction Measures – Points to Consider.

As part of the emergency measures set out in the Coronavirus Act 2020, all commercial tenants in England and Wales will be protected from eviction if they miss a rent payment within the next three months.

Below are some points to consider for both landlords and tenants.

Meaning of protection from eviction

The majority of standard leases require a tenant to pay their rent in advance, whether that be quarterly or monthly.

If a tenant fails to pay then there is usually a provision in standard leases entitling the landlord to forfeit the lease, evict the tenant and take back possession of the property if rent is not received within a given period set out in the lease, usually 14 to 28 days from the due date.

The effect of the Coronavirus Act 2020 is that during the Relevant Period (currently being 26 March 2020 to and including 30 June 2020, but subject to a potential extension), a landlord will not be entitled to take action against a tenant to forfeit a lease for non-payment of rent.

A landlord will not be deemed to have waived their right to re-entry and forfeiture unless they have given an express waiver to the tenant in writing.

Tenants must therefore be mindful that this is a temporary protection from eviction. The rent is still payable and after 30 June 2020, unless the government extends the Relevant Period, a landlord’s right to forfeit and evict will be automatically reinstated.

Landlords should be careful not to unintentionally waive their right to forfeit in their correspondence or discussions with tenants during this time.

Rents

The legislation provides that rent includes any sum a tenant is liable to pay under a business tenancy. As such, this could include insurance premiums, service charges and outgoings which are paid by the landlord and re-invoiced to the tenant and costs incurred by the landlord.

Effect on other remedies

The legislation does not currently appear to cover or prevent a landlord from pursuing other remedies such as: suing for arrears; serving statutory demands; commencing commercial rent arrears recovery (CRAR), or the drawing down of any rent deposit held. It also appears interest would still accrue on unpaid rents at the default interest rate provided for in the lease.

Are there any other alternatives?

Whilst the government’s measures alleviate immediate cashflow issues for tenants, it is purely a temporary fix and of course, provides no assistance to landlords.

As such, landlords and tenants are being encouraged to work together to agree rent concessions or rent-free periods between themselves, if appropriate. It is recommended that such agreements should be formally documented to ensure that the parties’ intentions are clear and legally binding.

Although clearly many tenants will face significant financial difficulties as  a result of the Coronavirus outbreak, a landlord should look to distinguish which tenants are genuinely suffering as opposed to those who are able to maintain their business at a normal level. As for tenants who have withheld rent without justifiable cause during this time, landlords would be prudent to consider the other remedies available to them in order to protect their position.

For further information, please contact our commercial property team on 01256 460830 or email [email protected]

During these difficult times our Town Gate office in Basingstoke is closed to visitors. However, thanks to our lawyers being able to work remotely, Phillips remains fully open for business and can discuss legal issues by telephone and video conference.

 

Disclaimer

This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.

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