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Commercial landlords banned from exercising forfeiture rights for non-payment of rent

Commercial landlords’ forfeiture rights for non-payment of rent will be suspended until at least 30 June under measures contained in the Coronavirus Bill, currently being rushed through Parliament. 

In this legal insight, we address some key questions about the measures and the impact they will have on landlords. 

What does the Bill actually say? 

At the time of writing, the latest version of the Bill prevents landlords of business tenancies from enforcing re-entry and forfeiture rights for non-payment of rent by their tenants. 

For how long do these measures apply? 

They will come into force on the day after the Bill is passed into law and will initially apply until 30 June, capturing the traditional June quarter day for rent payment. This period (known the ‘relevant period’) can be extended further on one or more occasions by the government passing regulations.

What is a business tenancy? 

The Bill adopts the wide definition of business tenancy used in the Landlord and Tenant Act 1954. This includes any tenancy where the premises are occupied by the tenant for business purposes, or for a mix of business and other purposes (irrespective of whether or not the tenancy has been contracted out of the security of tenure provisions of that Act). 

Does the ban just apply to the main rent? What about service charge and insurance rent payments?

The Bill defines “rent” to include any payment due from a tenant under a business tenancy.  Landlords are therefore prevented from exercising forfeiture rights in respect of non-payment of any sums due under the lease, not just the main rent. 

Do the rent and other payments remain due?

Yes. The government has made clear this is not a rental holiday. All business tenants remain liable for the rent, but are protected from having their lease forfeited if they are unable to pay.

Our tenant is a big organisation and is not struggling financially. Does it still benefit from the forfeiture ban?

There are no restrictions in the Bill on the tenants who benefit from the ban on forfeiture for non-payment of rent. It applies to all tenants of business tenancies. No evidence that the tenant is struggling to pay its rent is required. 

However, that does not mean that all business tenants should withhold their rent. The government says the measures are intended to facilitate conversations between landlords and tenants without the threat of eviction hanging over a tenant. The government hopes voluntary arrangements regarding rent will be made between landlords and tenants. 

To which locations does the ban apply? 

This insight addresses the measures contained in the Bill in respect of England and Wales. Similar measures are included for Northern Ireland. As far as we are aware, nothing similar is currently proposed for Scotland. 

What is the government doing for commercial landlords?

The government says it is “actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them”, but concrete measures are awaited. 

What options do commercial landlords have?  

Landlords should communicate with their tenants early to establish whether they will experience difficulty in paying their rents and to seek to come to mutually agreeable arrangements where possible. 

If a landlord is forced into considering enforcement action, options remain open to them. The ban in the Bill only applies to forfeiture for non-payment of rent and other sums. 

Other enforcement options may be appropriate such as serving a statutory demand for payment and/or issuing a winding-up petition. As the rent still remains due, it appears landlords could charge interest on any unpaid sums, possibly at a punitive rate, if provided for by the lease. 

The potential risks and rewards of any enforcement action would need to be carefully considered. These might include potential negative public relations as a result of taking action against a struggling tenant at a time of crisis. 

Will landlords be deemed to have waived their forfeiture rights by accepting less than the full rent from a tenant? 

No. The Bill confirms landlords are not treated as having waived their forfeiture rights unless they do so expressly in writing.

What if forfeiture proceedings have already been commenced before the Bill comes into force? 

In any proceedings for forfeiture already commenced, once the Bill becomes law the court cannot order possession to take effect before the end of the relevant period. 

Tenants can apply to vary any court order already made which requires them to give possession before the end of the relevant period. The court must grant such an application by ensuring the tenant does not have to give possession before then. 

Are there any other implications of these measures? 

Any failure by a tenant to pay rent during the relevant period is also to be disregarded in any Landlord and Tenant Act 1954 proceedings for renewal of a protected tenancy. When considering whether a landlord of a protected tenancy can object to a new tenancy on the ground that there has been a ‘persistent delay in paying rent’, any non-payment during the relevant period is not to be taken into account.  

TLT’s transactional and dispute resolution real estate lawyers are experienced in the full range of landlord and tenant matters and remain on hand to assist at this time. 

Contributor: Matt Battensby

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.

 

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