The impact of the Coronavirus Pandemic has been far reaching, with changes in legislation affecting commercial landlords in a number of ways. Here, head of Dispute Resolution Andrew Mawdsley explains what is involved.
The Coronavirus Act 2020 (“CVA 2020”). s.82 restricts a business landlord’s ability to forfeit the lease during the Relevant Period. The Relevant Period here runs from the 26th March 2020 to the 30th September 2020.
So, what are the effects?
- A landlord’s right of re-entry or forfeiture for non-payment of rent may not be enforced, by action or otherwise during the Relevant Period.
- No conduct by the landlord, or on the landlord’s behalf, can be deemed to be a waiver of the right to forfeit for non-payment of rent, unless the landlord expressly sets out the waiver in writing.
- If proceedings have already been started (in either the County Court or the High Court) then differing provisions apply depending upon what sort of order or proceedings are being considered.
Ultimately, however, an order for possession for non-payment of rent before the 30th September 2020 will not be possible.
Which business tenancies are covered?
The relevant tenancies are those as defined in Part II If the Landlord and Tenant Act 1954 or those to which that Part would apply if any relevant occupier were the tenant – such as a person who is not the tenant but who lawfully occupies the leased property or any part of it.
There are provisions in relation to what type of occupation would qualify for protection, but the provisions are broad – stretching from a full lease through to an agreement for an underlease. Each case will need to be decided on its own facts.
An “occupier” will still be an occupier for the purposes of the CVA 2020 where it (the occupier) is unable to occupy or if it is unsafe to occupy the premises due to the pandemic. The occupier must state its intention to the landlord that it is to re-occupy when safe to do so.
There are also considerations in relation to Head Landlords and whether or not a Head Lease could be forfeited. A superior Landlord cannot forfeit the head tenancy, for non-payment of rent, if part of the premises concerned is occupied (using the definition above) for business purposes.
Those such as farm business tenancies, mining leases and agricultural holdings, or those tenancies for 6 months or less, will not be covered by the regulations.
What does “rent” mean?
This means sums due under the terms of the lease, including basic rent, service charge or a tenant’s contribution to the cost of insuring the building.
It does not matter if the non-payment of rent occurred by reason of Covid-19. The restrictions during the Relevant Period apply no matter what the reason is for the tenant’s default in the payment of rent, even if arrears accrued before the Relevant Period.
What can Commercial Landlords do?
Forfeiture - The right of forfeiture and re-entry for non-payment of rent will restore after the Relevant Period – again, this could be extended.
In theory, a Commercial Landlord could seek to enforce a right of re-entry for a breach other than failure to pay rent. Before doing this the landlord should consider what the “reasonable period” for remedy of the breach (and therefore relief from forfeiture) might be given the lockdown restrictions and how that might affect the Tenant’s ability to remedy the breach.
Even then, if proceedings were commenced, they would be caught by PD51Z and they would be stayed.
Debt claims - The recovery of rent, by way of the following methods could still - theoretically - take place:
- claims for debt
- exercising commercial rent arrears recovery (CRAR)
- drawing down on a rent deposit
- claims against guarantors
- serving a statutory demand.
You guessed it – there is a “but” coming.
“The Taking Control of Goods and Certification of Enforcement Agents (amendment) (Coronavirus) Regulations 2020 (SI2020/451)”. apply here. The effect in this instance is to stipulate that before CRAR may take place there must be an equivalent of 189 days rent outstanding. This provision will apply during the Relevant Period, presently until the 30th September 2020.
There are various measures in place to prevent aggressive rent collection. Landlords need to have this in mind and should seek advice before acting.
Although beyond the scope of this note, there are restrictions in relation to the winding up of companies, with some exceptions.
Andrew Mawdsley is Head of Berwins' Dispute Resolution team. He is a Deputy District Judge and a highly experienced commercial litigation lawyer.