On 25 March 2020, Parliament passed the Coronavirus
Act 2020 (Act), which included emergency measures to provide some
much-needed breathing space for business tenants who find themselves in
financial difficulty due to the COVID-19 crisis, in the form of a moratorium on
the forfeiture of commercial leases under s82 (s83 for Northern Ireland).
As of 26 March 2020, landlords will not be permitted
to exercise a right of re-entry or forfeiture for non-payment of rent by
business tenants until 30 June 2020 (and possibly later if extended). The
definition of “rent” is broad and covers any sum a tenant is required to pay
under a business tenancy, so will extend to insurance, service charge contributions
and interest as well as principal rent.
Although providing some
welcome and immediate respite to business tenants just in time for the March
quarter date, it should be noted that s82 only serves to temporarily suspend the landlord’s right to forfeit
and does not absolve a tenant from its obligation to pay the sums that fall due
during the relevant period. Under the Act, a landlord’s right to forfeit can
only be waived expressly in writing, so any conduct by a landlord during the
moratorium will not amount to a waiver of the rents due. If sums are still
outstanding when the moratorium expires, a landlord will still be entitled to
seek forfeiture at that stage, unless some form of arrangement has been agreed
between the parties.
The aim of the legislation is, therefore, to encourage
positive discussions between landlords and tenants by providing them with an
opportunity to work together during this difficult and uncertain time to reach
an amicable result that is in the best interests of both parties. Although
there is no single solution, options could include agreeing reduced rents, rent
free periods, or monthly rent regimes to alleviate the financial pressure on
tenants in the short-term.
It should also be noted that the moratorium only
applies to forfeiture for non-payment of rent and does not prevent enforcement
for any other breach of covenant under the lease, including insolvency.
Further, the Act does not prohibit a landlord from
pursuing alternative enforcement action against a tenant to recover the
arrears, for example winding up proceedings, CRAR or a money claim. However,
with the current COVID-19 lockdown and court restrictions that are in place,
one would query how effective such enforcement methods will be as a means of
prompt debt recovery.
For further information, please contact Kenny Friday