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Coronavirus Act 2020: a complete solution for commercial landlords and tenants?

Posted by:

Rachel List

Image of Coronavirus Act 2020: a complete solution for commercial landlords and tenants?
by

Rachel List,

Partner, Head of Commercial Property

On the 25 March 2020 the Coronavirus Bill received Royal Assent. In light of this, Commercial landlords and tenants will be keen to understand the benefits and the potential problems sections 82 and 83 of the Coronavirus Act 2020 could cause them at present and in the future. 

 

“A right of re-entry or forfeiture under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.”

 

In simple terms, the above means a landlord cannot enforce its contractual right to commence possession proceedings for non-payment of rent, service charge or insurance rent during the period 26 March to 30 June 2020. If a landlord commenced possession proceedings prior to 26 March, any order for possession made after this date must not require a tenant to give possession before the end of 30 June 2020. 

 

Despite the above, the Act does not suspend a landlord’s right to rent; landlords can, and should, continue to demand rent and deal with requests for consents, etc in the usual way (without risk of inadvertently waiving its right to forfeit for non-payment of rent once the moratorium ends). The Act also does not prevent a landlord exercising its forfeiture rights for breach of a different term of the lease. However, it would be worth considering if a court is likely to grant a possession order on other grounds, or would it be inclined to grant relief until the moratorium ends? Reputational and commercial considerations are likely to deter landlords from commencing possession proceedings perhaps at all during the relevant period.

 

In addition, the Act does not suspend a tenant’s obligation to pay. The rent will eventually have to be paid, together with accrued interest. A rent holiday might be attractive for many people, but it may not go far enough for some tenants, who might actually need a rent reduction or suspension. It may well be later rental payments, post 30 June 2020, that tenants struggle to meet, once the interruption to their business has fully taken effect. 

 

Whilst landlords are not obliged to agree to any other concession, there could be good commercial and reputational reasons why landlords choose to engage with tenants. Avoiding tenant insolvency being one such commercial consideration.  

 

Whilst the Act is welcome news for tenants, it is advisable that engagement between landlords and tenants occurs, to reach and document a rent concession agreement. Such agreements should be carefully documented for the protection of both parties. Tenants may also be looking closely at their break rights, ensuring they are poised to exercise if one is available to them. Tenants will also want to better understand their other lease obligations and assess their ability to comply in the coming weeks/months.

 

The introduction of the Act is likely to raise other questions, in both landlords and tenant’s minds. For landlords, they will be facing a loss of rental income and wondering how this will affect their ability to comply with obligations owed to a lender. Landlords may also consider how it will continue to provide services it is obliged to provide under the terms of the lease, and whether it will be obliged to provide additional services, such as deep cleaning. For tenants, the priority will be to secure an agreement with its landlord as to the rent concession that will be provided, whilst considering how it will meet other liabilities, such as business rates, and how it will comply with lease terms without, potentially, being able to occupy (e.g. repair obligation/keep open clause).

 

The Commercial Property department at Archers Law are on hand to advise and assist landlord and tenant clients alike, in understanding and assessing lease obligations and also documenting any rent concession agreement that is reached. Please do not hesitate to contact Rachel List on 01642 636515 or email Rachel.list@archerslaw.co.uk for more advice. Archers Law works closely with surveyors who will be able to assist in providing any ratings advice required. 

Disclaimer: The information contained in this article is for general information only and made available for educational purposes only.  It is for a general understanding of the law, not to provide specific legal advice.  This article should not be used as a substitute for competent legal advice from a regulated professional.  You should seek appropriate legal advice for your own situation.