COVID-19 and real estate

Commercial tenants who “cannot” pay their rent because of coronavirus will be protected from eviction

The Government has announced that leases of commercial premises in England and Wales cannot be forfeited in the next three months if tenants miss a rent payment. This measure coincides with the 25 March quarter day.

What does this mean in practice?

Landlords cannot forfeit a commercial lease for non payment of rent in the next three months.

For this purpose “commercial lease” is defined by reference to the Landlord and Tenant Act 1954 (1954 Act), also known as a “business tenancy”.

Does this apply to contracted out tenancies (ie leases that do not have security of tenure)?

The position is unclear but the best view is that yes it does.

Is the rent still payable?

Yes – the rent remains payable and interest will accrue as normal.

What about service charge and other sums payable under the lease?

Rent includes any amounts payable under the lease – so service charge and insurance rent (interest, VAT, costs etc.) is covered by the forfeiture moratorium. Landlords may, therefore, get into cash flow issues with their own service charge/facilities management costs – and likewise on meeting insurance premiums that may be falling due now.

How long does this apply for?

Once the Bill is passed then initially until 30 June 2020 but there will be the option for the Government to extend if needed. This will also catch the 24th June quarter day.

Can a landlord waive a right to forfeit during this period?

Unless a landlord gives an “express waiver” of rent, they will not be regarded/deemed to have waived their right to forfeit for non-payment of rent. This is likely to preserve the right to forfeit if rent isn’t ultimately paid when the moratorium finishes.

A landlord may still waive the right to forfeit in respect of other breaches.

My tenant advised they were in a position to make the payment but have now not done so- are they covered by the moratorium?

Yes - the forfeiture moratorium applies regardless of whether the tenant can/is able make the payment

We hold other security can we call on this?

Yes - it appears that for example rent deposits and claims against guarantors can be pursued.

Can we exercise Commercial Rent Arrears Recovery (CRAR)?

Yes - but this may be difficult in practice.

Can rights of forfeiture for breaches other than non-payment of rent be pursued?

Although unlikely in practice – yes.

Will it affect a tenant’s right to renew their lease?

1954 Act protected tenants will not have non-payment of rent disqualify them from 1954 Act renewals. However, contractual options to renew might provide otherwise so this is very much limited to the 1954 Act renewal procedure only.

Where there is a tenant break option coming up which is conditional on payment of rent, if the rent is not paid will this affect the ability to exercise the break option?

If a tenant is in arrears and the break is conditional on rent being paid then yes this may well affect their ability to exercise their break option. Break option conditions are usually interpreted strictly so a careful review of the break option wording is needed. The Bill does not seek to address this issue at all.

In respect of these measures Simmons & Simmons partner Carol Hewson notes:

‘These are very challenging times and this will provide some necessary breathing space for tenants. However, there will still need to be discussions between landlords and tenants about the best next steps in these unprecedented circumstances.’

If you would like a more detailed guidance note on these measures and the way in which they may affect your business please get in touch.

The Government press release is here.

The above is based on the Bill which has not yet been passed so is subject to change. We are likely to see further changes after the Bill comes into force so please ensure you check for updates.

Update: The Coronavirus Act 2020 received Royal Assent and became law on 25 March 2020. This means initially no forfeiture steps may be taken between 26 March and 30 June 2020.

See our Coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.