COVID-19 AND COMMERCIAL LEASES
By Carla Jones
Direct Dial: 01458 844101
The Coronavirus Act 2020 (“the Act”) which received Royal Assent on 25th March 2020, provides protection for Commercial Tenants in respect of the unprecedented events caused by the Covid-19 pandemic. It is important for all parties (landlords, tenants and everyone else) to appreciate that the guidance and, to a certain extent the law is quickly evolving as the Government tries to put measures in place to provide the relevant protection and support for those affected. The Act sets out new measures to protect Commercial Tenants in these trying times.
What Does the Coronavirus Act Say?
For those wanting to take a deep dive into the legislation (all 358 pages of it), a full copy can be found at http://www.legislation.gov.uk/ukpga/2020/7/pdfs/ukpga_20200007_en.pdf
Paragraph 82 relates to Business Tenancies and, in summary para 82 says;
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.
“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);
Currently the relevant period is set to expire at the end of June, but clearly the Act leaves to door wide open for this period to be further extended. It seems likely that the Government will keep this date under constant review as there will likely be pressures from Landlords who want their rent and Tenants who want more time!
What is clear, is that from now, until 30Th June 2020 at the earliest, Landlords will not be permitted to take forfeiture action even if the Tenant is in rent arrears and Courts are not permitted to make orders granting possession to Landlords until the relevant period has expired.
Section 82 goes on to make clear that this will apply even if court action was commenced before the Act came into force.
So, in these circumstances, what should parties be doing?
The Act does not excuse payment of rent on the Tenant’s part, so this is not a “get out” clause for all commercial tenants. What the Act aims to achieve it that Commercial Tenants who have, through no fault of their own suffered financial losses, will not be forced out of their business premises due to non-payment of rent. Whilst each decision will be made on the particular circumstances involved, the Act should not be seen as encouraging Tenants not to pay rent. There is a strong argument that if they can afford to pay, they should pay. If payment isn’t made now, it will be demanded in the future and at that point the Tenant is going to have to find a larger chunk of cash to clear the arrears and continue paying rent which could have an even more damaging effect on the business.
If Tenants have been severely affected by the Coivd-19 crisis then the Act is designed to protect them, but long term that protection is not designed to see the landlord out of pocket. We would recommend that the lines of communication are opened as fully and as early as possible. Tenants should be forewarning Landlords if rent won’t be paid and Landlords should be anticipating those letters.
To protect both parties’ positions as fully as possible we would recommend that a side letter is prepared to set out the exact terms of agreement. For example, if a landlord is willing to defer rental payment for a period of 3 months, they may wish to have reassurance that the tenant is applying for (and hopefully receiving) financial assistance from the Government which in turn will hopefully enable the deferred rent to be paid. All of these points can be recorded and formalised in a side letter.
It is important to remember that the Act will only provide protection for a short period of time and so it is crucially important that during that window of protection, the parties make every effort to agree what will happen thereafter, otherwise, as soon as the protection is lifted, all tenants in arrears will technically be vulnerable to forfeiture action.
For any landlords or tenants seeking advice in respect of their options, the provisions of the Act or the preparation of documentation should contact our commercial property team who will be ready and willing to assist.