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Government announces moratorium on Coronavirus-related commercial forfeiture

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29/06/2020

Along with other unprecedented measures to protect the public and the economy, the UK government announced on 23 March 2020 that commercial landlords are to be precluded from forfeiting commercial leases [1] and evicting the tenant for non-payment of rent. This measure was originally in place until 30 June 2020 however has been extended until 30 September and will be reviewed thereafter.

These measures form part of the emergency Coronavirus Act 2020. The full Act can be accessed here.

For these purposes the relevant section is Section 82 of the Act. The Act is expressed to apply to a ‘relevant business tenancy’ and precludes the landlord from effecting a right of re-entry or forfeiture for the non-payment of “rent” for the “relevant period”. These terms are defined as follows:

Relevant Business Tenancy
  • A tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies, or
  • A tenancy to which that Part of that Act would apply if any relevant occupier were the tenant.
Rent

Includes any sum a tenant is liable to pay under any relevant business tenancy.

Relevant Period

“relevant period” means the period— (a) beginning with the day after the day on which this Act is passed, and (b) ending with 30 June 2020 or such later date as may be specified by the relevant national authority in regulations made by statutory instrument (and that power may be exercised on more than one occasion so as to further extend the period);

In the case of an applicable tenancy, the moratorium extends not only to the unpaid principal yearly rent but to any sums payable under the lease.  In light of the Government’s recent measures, in these circumstances, the landlord would be precluded from effecting re-entry or forfeiture for any sums owed by the tenant until at least 30 September 2020. There had been some suggestion that the moratorium would only apply in circumstances where the tenant could not pay as a result of coronavirus but there is no such qualification – it applies across the board.

The definition of relevant tenancy may give rise to arguments about certain classes of commercial tenancy or occupation not falling within the moratorium. So for example it appears the following are not caught by the moratorium :

  • Licences including serviced office accommodation;
  • Tenancies at will;
  • Mining leases, a tenancy of an agricultural holding, a tenancy granted in consequence of employment, a tenancy not exceeding 6 months and a home business tenancy all of which are specifically excluded from the 1954 Act;
  • Code Agreements under the Electronic Communications Code 2017 and where Part 2 of the Landlord and Tenant Act 1954 does not apply.

and the following are arguably not caught by the moratorium :

  • Tenancies where the tenant (or a group company) is not in business occupation and the occupier is in occupation or possession without landlord’s consent i.e. is in occupation unlawfully.
  • Tenancies where the tenant is holding over under the Landlord and Tenant Act 1954 but where it is no longer as a matter of fact in business occupation. Although if the tenant is not in business occupation as a result of the Government’s orders and outside of the tenant’s control then so long as the tenant continues to assert his right to occupy then it will still likely to be caught by the moratorium.

The rent will continue to accrue together with interest and there is provision that no step taken by a landlord will waive the breach for non-payment of rent, save for an express waiver in writing. So in theory and in the absence of any further extension of the relevant period, the landlord’s entitlement to forfeit will be immediately restored at the end of the relevant period.

The moratorium on commercial forfeiture does not apply to breaches of other tenant covenants and arguably will not extend to the requirement to pay unliquidated amounts such as damages for dilapidations.

In addition, under the Taking Control of Goods and Certification of Enforcement Agents (Amendment)(Coronavirus) Regulations 2020, the Government has restricted the use of Commercial Rent Arrears Recover (“CRAR”)[2] .  The amended statutory provisions in relation to CRAR are such that the minimum amount of net unpaid rent by any tenant must be an amount equivalent to 189 days rent.

Further, the Corporate Insolvency and Governance Act 2020 was enacted on 25 June 2020 which introduced the temporary ban on the use of statutory demands and winding up petitions where a company cannot pay its debts due to coronavirus until 30 September 2020.

Walker Morris will continue to monitor and advise on the progress of the Coronavirus Act, and on options for landlords and tenants as matters develop.

 

[1] See our briefing on the basics of forfeiture for further information about this landlord’s remedy

[2] See our recent briefing for information and practical advice on CRAR

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