The March quarter day has arrived. A lot of tenants will have decided not to pay the rent due or to delay making payment pending an agreement with their landlord for the rent to be deferred to a later date, to be reduced, to be paid by an alternative method i.e. monthly in arrears, or waived.
A standard commercial lease will include a right of re-entry which entitles the landlord to terminate or forfeit the lease in the event of a default by the tenant, including non payment of rent. Typically a right of re-entry for non payment of rent will allow the landlord to re-enter the property if the rent is unpaid 21 days after becoming due. A commercial lease may be forfeited by a landlord without notice and by the landlord changing the locks to the property and taking back possession. Alternatively, the landlord may issue Court proceedings asking the Court to make a Possession Order, but most landlords opt for the quicker route of peaceable re-entry.
The Coronavirus Bill, which is currently before Parliament, and is due to become law imminently, imposes a temporary moratorium on a landlord’s right to forfeit a commercial lease based on rent arrears. In its current format, the Bill says that a right of re-entry or forfeiture under a relevant business tenancy within the Landlord & Tenant Act 1954 for non payment of rent may not be enforced during the relevant period. The relevant period is the period beginning on the day after the Coronavirus Act is passed, ending on 30 June 2020 or such later date as the Secretary of State may specify.
“Rent” includes any sum a tenant is liable to pay under the relevant business tenancy. This will therefore include service charge payments, insurance rent, interest etc.
The moratorium temporarily suspends the landlord’s right to forfeit. Accordingly the right will be resurrected after 30 June 2020 or later, depending on whether the moratorium is extended, unless the landlord agrees in writing to waive the right. Accordingly, although the right to forfeit based on rent arrears will be suspended for the period between when the Act becomes law and 30 June 2020, after that date the landlord may take action to forfeit the lease based.
The moratorium does not apply to forfeiture for any other breach of covenant by the tenant or insolvency proceedings. In general, where a landlord wishes to forfeit on grounds other than on non payment of rent, the landlord must first serve Notice under Section 146 of the Law of Property Act 1925, allowing the tenant a reasonable time in which to remedy the breach. Therefore the tenant will receive notice of any forfeiture action the landlord intends to take and will be able to take steps to avoid forfeiture where appropriate.
The Bill does not at this stage prevent landlords from taking other action against a tenant for non payment. For example, the landlord is not precluded from serving a Statutory Demand under the Insolvency Legislation, issuing Court proceedings to obtain judgment for the arrears or taking steps to take control of a tenant’s goods under the Commercial Rent Arrears Recovery Regime. In practice and given the current lock down, it is difficult to envisage how these remedies might be pursued.
Tenants may feel that they are in a stronger negotiating position now that they do not face the immediate risk of forfeiture for non-payment of rent. However, as mentioned above, the moratorium is temporary and does not prohibit a landlord from taking other enforcement action.
Therefore, overall, the best approach is for the landlord and tenant to work together to preserve goodwill and the long term relationship of landlord and tenant going forward.
In terms of agreeing any variation to the rent, such as a waiver deferral or variation to the date on which rent payment falls due, the agreement should be recorded in writing in clear, unambiguous, terms. The parties should also agree on such matters as how interest and the landlord’s costs, payable under the lease, are to be dealt with. For example, is interest to be waived or deferred?
If you have any questions, please do not hesitate to give one of the team a call.