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We have previously written about how the Coronavirus Bill contained a moratorium on commercial landlords’ forfeiture rights for non-payment of rent until at least 30 June.
With the Bill now in force as the Coronavirus Act 2020 (the Act) and following further developments in this fast moving climate, we consider how recent measures are impacting on commercial landlords.
In practice, irrespective of the moratorium on forfeiture for non-payment of rent in the Act, landlords will not be able to take possession proceedings in respect of any commercial leases during the current crisis.
On 26 March 2020 a new Practice Direction was introduced by the Master of the Rolls. The effect of this is that all proceedings for possession, as well as enforcement of any possession orders, will be stayed for a period 90 days. This applies to possession proceedings in relation to all leases, irrespective of whether or not they benefit from the forfeiture moratorium.
Leases not covered by the moratorium include mining leases, as well as certain agricultural tenancies, some short term leases of six months or less and leases used to grant code rights under the electronic communications code.
Although those lease types do not benefit from the moratorium on forfeiture in the Act, all leases will benefit from the 90-day stay, and landlords will not be able to obtain possession through the courts.
Whist the focus here is on business leases, it is noteworthy that tenancies of residential property are also caught by the 90-day stay.
This insight focusses on England and Wales. We have also written about what the Coronavirus (Scotland) Bill means for Scottish real estate.
In Northern Ireland, whilst the Act contains similar forfeiture moratorium provisions to those which apply in England and Wales, we are not aware of an equivalent stay on possession proceedings for business leases.
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, their options are now more limited.
Forfeiture for a reason other than non-payment of rent (e.g. breach of another material covenant of the lease) and which is effected by peaceable re-entry does not appear to have any restriction.
Other enforcement options may remain open such as serving a statutory demand for payment and/or issuing a winding-up petition.
However, there is confusion over the courts’ approach to winding up petitions. Following an initial announcement by the Insolvency and Companies Court that hearings would be adjourned in blocks to future dates ranging from 17 June to 5 August 2020, it appears they are now being heard again. We expect a further court announcement on a structure for the hearing of winding up petitions in the forthcoming weeks.
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. The position is complex and evolving and obtaining specific advice on a case-by-case basis is strongly recommended.
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 April 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.
02 April 2020
by Jason Juden