Update: A “final” stay on business tenancy terminations?
The Coronavirus Act 2020 (“the Act”) came into force on 25 March 2020. For landlords and tenants in England and Wales, the Act immediately prevented a landlord from terminating certain business tenancies through forfeiture for non-payment of rent – a restriction initially imposed until 30 June 2020. This date was subsequently extended to 30 September 2020, 31 December 2020 and 31 March 2021.
The Government has now announced that the moratorium on the forfeiture of business tenancies will be further extended until 30 June 2021. Powers remain available in the Act for further extensions beyond this date.
When the Government extended the restrictions back in December 2020, it stated that it was a “final extension” to give landlords and tenants another three months in which to reach agreements on any unpaid rent before the restrictions were expected to be lifted. However, that announcement was made prior to the introduction of Tier 4 in December 2020 and a third national lockdown in January 2021. The Government’s position remains that any tenants who can pay all or any of their rent should do so.
The latest extension is contained within The Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) Regulations 2021 (“the Regulations”) which will come into force on 31 March 2021.
The restrictions apply to forfeiture by a landlord instructing a bailiff to change the locks as well as to forfeiture proceedings via the Court.
What tenancies do the restrictions apply to?
The Act states that the restrictions benefit any business tenancy to which Part 2 of the Landlord and Tenant Act 1954 (“the 1954 Act”) applies. The Explanatory Notes accompanying the Act confirm that the Government intends it to also apply to leases where the protection of the 1954 Act is excluded. The provisions also seek to cover lawful subtenants.
Does it apply to rent or other payments under the lease including service charge and insurance?
Yes, the definition of rent extends to any sum payable under the business tenancy including insurance, service charges and interest.
If the landlord enters into discussions with a commercial tenant in relation to the sums owed, could it lose the right to forfeit for non-payment of these sums?
No – the Act states that the landlord’s conduct during the relevant period (25 March 2020 to 30 June 2021) will not be treated as waiving the right to forfeit for non-payment of rent unless the landlord gives an express wavier of the right to forfeit in writing. In effect, the landlord’s right to forfeit for unpaid rent is “frozen” until 1 July 2021. The Act states that the right to forfeit will be preserved for non-payment of rent.
On 19 June 2020, the Government published a voluntary code of practice for commercial property arrears during COVID-19 with the aim of facilitating discussions between landlords and tenants by “communicating best practice and presenting a unified approach” which remains in force until 24 June 2021. For more on the code, please see our insight: Government code published for commercial property arrears during COVID-19. If the parties agree a rent concession, the question of whether there will be changes to the landlord’s right to forfeit for non-payment of rent will depend upon the precise terms of the rent concession agreement.
What about existing forfeiture proceedings?
Under the Civil Procedure Rules, a stay on possession proceedings and enforcement of orders for possession was put into place until 20 September 2020. However, this has now been lifted. Nonetheless, the restrictions of the Coronavirus Act 2020 mean that landlords are still not entitled to issue any forfeiture proceedings for arrears which fell due since 25 March 2020. Moreover, under the Act and the Regulations, Courts will not be able to make a possession order which requires a tenant to give possession of business premises for non-payment of rent to the landlord before 1 July 2021.
What will happen when the restrictions are lifted?
It was announced in the Government’s latest press release that a call for evidence will be launched to assess the progress of negotiations between landlords and tenants in relation to commercial rents. The call for evidence will include details of what could happen after 30 June 2021, including a phased lifting of restrictions or a targeted application of restrictions to particular businesses affected by COVID-19. Landlords and tenants will await the call for evidence with interest and it is clear that there will be many keen to provide their feedback.
In this fast paced period of unprecedented change, if landlords or tenants have any further questions about the operation of the Act and how it may affect them or how to prepare for the lifting of the restrictions, please do not hesitate to contact Emma Humphreys, Laura Bushaway or your usual Charles Russell Speechlys contact.
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