One measure the Coronavirus Act 2020 has introduced is a statutory moratorium on the forfeiture of business tenancies for the non-payment of rent. Whilst forfeiture is usually a very strong remedy for a landlord facing a tenant refusing or unable to pay its rent, in the current challenging climate it is unlikely that commercial landlords will be attracted to taking possession of premises with the intention of re-letting. However, there are a number of important considerations arising from the new protections introduced by the Act.
Commercial leases contain the right for a landlord to re-enter and re-take possession of premises where a tenant has failed to pay rent and it remains unpaid for a specified period. Once that period has passed, the right for a landlord to forfeit the lease by peaceably re-entering the premises arises - provided that, after the right has arisen, the landlord has not waived it by doing anything to treat the lease as continuing.
The moratorium provided by the Act means that a landlord cannot forfeit for non-payment of rent for an initial period of three months after the March 2020 quarter day until 30 June 2020 (although the Act allows this period to be extended). Equally, no conduct on the landlord’s part during the relevant period will amount to waiver of its right to forfeit for non-payment of rent, other than by an express written waiver.
It appears that the moratorium relates only to business tenancies to which Part 2 of the Landlord and Tenant Act 1954 applies, and would therefore not provide protection to tenants on leases granted for less than six months.
Whilst these provisions are part of the Act dealing with steps in response to the current pandemic, there is nothing to limit the moratorium to arrears that have fallen due as a result of tenants’ difficulties flowing from Coronavirus. In fact, the moratorium prevents the courts from making an order for possession in forfeiture proceedings for the tenant to give up its premises before 30 June 2020. The arrears in such cases could have fallen due many months ago, and may not relate at all to current circumstances. This would make sense if the tenant’s inability to pay the arrears is affected by the pandemic.
The moratorium does not apply to breaches of the lease other than non-payment of rent. In theory, a landlord could forfeit for any such other breaches provided it has served notice under section 146 of the Law of Property Act 1925. Whether this is commercially of benefit to a landlord will of course be dependent on the particular situation. In any event, a section 146 notice requires a tenant to remedy the specified breaches (for example, for the tenant making unauthorised alterations) within a reasonable time, insofar as the breach is capable of remedy. Where that is the case, what would a reasonable time be in the current circumstances? Whilst there are certain breaches which the courts have determined are incapable of remedy, these are limited. Therefore, in practical terms, a landlord’s ability to forfeit for most breaches during these difficult times will be curtailed.
The measures do not remove or delay the tenant’s underlying obligation to pay rent during the relevant period. Nor does it prevent landlords from taking other enforcement action, should it be so minded. When the moratorium ends, landlords will still have the right to claim any rent falling due during the relevant period, as well as the opportunity to forfeit the lease for any such arrears. The Act therefore provides only a limited and very temporary measure that in a number of months will fall away, leaving landlords and tenants to either agree commercial compromises now to get through the difficult period, or to consider much more drastic steps later.
Many landlords and tenants are already having conversations and reaching voluntary arrangements about rental payments due shortly but the government recognises businesses struggling with their cashflow due to coronavirus remain worried about eviction.