Coronavirus Act 2020
The Coronavirus Act 2020 has now passed into law and can be seen here >
From an E&W property perspective the key provisions are:
82(1) 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.
82 (2) During the relevant period, no conduct by or on behalf of a landlord, other than giving an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent.
82 (4) Any order made by the High Court during the relevant period to the effect that possession of the property comprised in the relevant business tenancy is to be given to the landlord must ensure that the tenant does not have to give possession of the property to the landlord before the end of the relevant period.
82(11) For the purposes of determining whether the ground mentioned in section 30(1)(b) of the Landlord and Tenant Act 1954 (persistent delay in paying rent which has become due) is established in relation to a relevant business tenancy, any failure to pay rent under that tenancy during the relevant period (whether rent due before or in that period) is to be disregarded.
“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);
“relevant business tenancy” means —
(a) a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies, or
(b) 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 a relevant business tenancy.
Q&A
Please see Q&A below which we hope is of help:
Q:Is the right for all tenants regardless of size/monetary strength?
A:Yes – s.82(1) is completely unqualified and simply provides as follows: "A right of re-entry or forfeiture, under a relevant business tenancy, for nonpayment of rent may not be enforced, by action or otherwise, during the relevant period."
Q:Does the change in legislation differentiate between can’t pay and won’t pay?
A: The legislation talks about non-payment of rent. It doesn't go into detail as to whether the tenant is able to pay or not.
Q:Does this remove the requirement for paying rent to be linked to other clauses e.g. active break clauses?
A: The legislation covers the landlord not exercising its right to forfeit. It does not mean a tenant does not have to pay this rent at some point later. In theory, it could exercise its right to forfeit immediately after the end of the "relevant period". If you had a break date during the relevant period and the break was conditional on the payment of rent up until the break date, I think it's arguable that you would lose the break if you have not paid the rent, notwithstanding this legislation.
It should also be noted that s.82(2) reserves the position for the landlord regarding waiver, which will prevent tenant arguments later on about waiver during this period: "During the relevant period, no conduct by or on behalf of a landlord, other than giving an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent."
Q:What happens if the Landlord actually obtains an order for possession during the "relevant period"?
A:The landlord is obliged ensure the tenant does not have to give up possession before 30 June – so the tenant is given breathing room, practically vacating a commercial unit at this point may be impossible (or indeed illegal).
Q:The Act refers to "rent" – does this mean just yearly rents?
A: No – rent is widely defined here so this includes all sums payable under the lease including service charge, insurance rent, VAT and interest.
Q: The Act refers to "relevant business tenant" what does this mean?
A: We think the Act includes both leases fully inside the Landlord & Tenant Act 1954, and also contracted out leases (note that contracted out leases only exclude s.24-28 of the 1954 Act – not the whole of part II). Note the exclusions from part II are set out in s.43 of the LTA 1954 - Landlord and Tenant Act 1954 – so the provisions will not extent to 6 month or less leases (automatically outside the act under s.43), certain agricultural holdings, and telecoms code apparatus, nor licences to occupy, tenancies at will.
Q: What about guarantors – can they still pursued?
A: There has been no moratorium in doing so, so far. Even the forfeiture moratorium is a temporary 'block' in one type of enforcement and does not prevent Landlord's suing for unpaid rent. At the moment, it is business as usual so far as guarantee liabilities are concerned. Commercially, some beneficiaries may take a conciliatory view in the short term, but not all. Do note however that the courts are largely on lock down and are soon going to develop significant backlogs which will take a long time to clear. Progressing the issue and progress any new claims will therefore be delayed resulting in a consequential delay in court enforcement. Note however that any contractual/statutory interest will continue to accrue and also be recoverable.
Q: What about other lease obligations?
A: The moratorium extends to unpaid rents only and not other obligations under the lease.
Q: Can the moratorium be extended?
A: The Act includes a power to extend the period – see the definition of "relevant period".
Q: Will unpaid rents still be owed?
A: The Act only prevents a landlord from enforcing its rights during the relevant period, the obligations under the lease still stand and all rents are still payable. Many tenants have already refused to pay the March quarter days rents and will be in discussions with their landlords about rent concessions, monthly rent payments and lease re-gears
Q: What other remedies does the Landlord have?
A: The Act does not extend to CRAR, Statutory Demands or other enforcement options. Forfeiture remains available for other grounds. A landlord may be able to re-enter following the s.146 notice procedure.
Further Considerations:
On the 23 March 2020, the Government announced that the lease moratorium previously only available to private renters would extend to commercial leases under the Coronavirus Act 2020, which passed on the 25 March 2020.
The lease moratorium is welcomed by the vast majority of retailers and the hospitality industry who are reliant on physical footfall entering their shops. There are considerations, however that should be taken by those relying on the moratorium as this does not end the obligations of the lease in its entirety.
What type of payments are covered under the act?
At present the lease moratorium extends to unpaid rents only and not any other obligations under a lease. The benefit of this, however, is that if the tenant fails to make rent payments, the landlord will be prevented from re-entering or forfeiting the lease during the relevant period as found under s82(1) of the Coronavirus Act.
Under s82(12) of the same act, the Relevant Period is defined as "beginning the day after the act is passed and ending on the 30 June 2020 or such later date as may be specified by the relevant national authority…".
Rent is defined as "any sum a tenant is liable to pay under a relevant business tenancy". Whilst a business will have to review the terms of its own lease to see what sums are due under the tenancy, generally this will include service charge and insurance rent which will be agreed as a sum due under the relevant tenancy.
It is worth noting that the Government does hold the power under this act to extend the relevant period should the pandemic continue to cause any applicable shops to be closed. Therefore if the tenant continues to be unable to pay the rent, it is likely this will be synonymous with the government forced closures.
Will a business still owe the rent after the moratorium?
Unfortunately as mentioned above, the legislation only prevents a landlord from enforcing any rights they have to obtain rent during the Relevant Period. However the lease does remain operational and unlike a rent free period, the rent still remains to be paid. Therefore after the 30 June 2020 the Landlord can begin to take action to re-enter or forfeit the lease.
It is therefore important that the tenant still considers how the rent will come to be paid and considers these options early on. This issue is discussed in greater detail below.
What are my options as a tenant?
Under s82(2) the Landlord is still permitted to waive its right to re-entry or forfeiture for non-payment of rent, however this must be given expressly in writing. Any business who will struggle to pay rent during this period should take the opportunity to talk to their landlord to come to a sound commercial agreement. The Landlord may be agreeable to waiver such right during this time, should the tenant and landlord have the discussion.
Further, as many landlords will now benefit from a mortgage moratorium, there may be an opportunity to negotiate more reasonable terms during what is currently a difficult period for all businesses. This may include a rent free period or reduced rents which will become payable after the Relevant Period or even during it. This will however depend on the bargaining power each party holds including the actual value of the rent, the remainder of the term, reputation of the landlord and the occupier and the costs of possible litigation should no agreement be made.
As the legislation intends this gives the parties breathing space to negotiate appropriate terms for the future.
