Government extends suspension on lease forfeiture to commercial premises

As soon as emergency measures began to be put in place as a response to Covid-19, many tenants approached their landlords to agree rental concessions. Hearteningly, landlords and tenants were mostly working together in a co-operative spirit to try and get over this unprecedented period of time. Tenants are worried about their ability to survive, with rent often being their most significant outgoing; landlords are worried about their own finances, both in the short-term and in the months that follow. There was a feeling that both sides would have to pull together to try and ride out this storm as best they could.

The Government has now stepped in and added provisions to the Coronavirus Bill which block landlords from forfeiting leases until 30 June 2020 should tenants not pay sums due under their leases – not just rents.

Forfeiture

Forfeiture is the landlord’s ability to terminate the lease upon tenant default. Whilst there are numerous restrictions on its operation, in essence, the landlord can apply to the Courts to terminate the lease or can re-enter and change the locks if the tenant is in significant breach of the lease. Failure to pay rent is by far the most prevalent ground which the landlord seeks to rely on when effecting forfeiture. The tenant has the right to apply for relief. The landlord also has to ensure it does not waive its right to forfeit; this is done by the landlord treating the lease as subsisting after it has knowledge of the breach (the classic example is a landlord writing to its tenant demanding the arrears and accidentally waiving the right to forfeit for that quarter).

What does the Coronavirus Bill actually say?

It has to be remembered that the Bill has been drafted as an emergency measure and will leave questions unanswered. Also, depending on the extent of the outbreak, the relevant periods in the Bill may be extended and there is likely to be further legislation to deal with Covid-19.

As the Bill is currently drafted, the important passages for commercial landlords and tenants in this context state:

• A landlord cannot exercise forfeiture for the failure to pay ‘rent’ during the relevant period (until 30 June 2020), whether by re-entering the property or issuing proceedings
• ‘Rent’ is defined not as quarterly rent, but as any sum a tenant is liable to pay under a relevant business tenancy. This will include service charge and insurance
• This affects ongoing claims in the Courts and the Courts should not grant an order for possession within the relevant period
• A landlord cannot waive its right to forfeit in relation to the rent due within the relevant period, therefore allowing dialogue to continue between landlord and tenant
• A failure to pay rent during the relevant period will not count as rent arrears should a landlord seek to terminate a tenancy under the Landlord and Tenant Act 1954 for persistent failure to pay rent.

What does it not say?

There is likely to be further clarification but both landlords and tenants need to be conscious of the following:

• The Bill does not say that tenants can simply stop paying rent, service charge and other sums due. This is a temporary suspension on landlords being able to terminate leases in the event of default
• There is no specific suspension on interest running on overdue rent and other sums
• There is no suspension of the right to forfeit for other breaches not relating to sums due, albeit such actions would have to be taken via the Courts
• There is nothing to prevent landlords from commencing insolvency proceedings against the tenant
• There is nothing to prevent landlords from drawing down on rent deposits or pursuing guarantors
• It does not suspend action under the Commercial Rent Arrears Recovery scheme, whereby the landlord can serve notice that it can enter premises and sell the tenant’s goods to cover the rent arrears
• Will the landlord be able to effect forfeiture as soon as the relevant period expires? The tenant has the right to relief from forfeiture and it would be logical that a tenant would garner significant sympathy with the Courts should a landlord move swiftly after the suspension lifts