Coronavirus Update for Commercial Landlords

Apr 3, 2020

As explained in our Residential Landlords Update article the Coronavirus Act 2020 obtained Royal Assent on 25 March and provides all manner of emergency provisions coming into force on 26 March. Those provisions will remain effective until 30 September 2020. However, that end date can be extended by the Secretary of State.

Prior to the Coronavirus Act 2020, commercial landlords had the right, (assuming a forfeiture clause is in the lease – and they normally are) to forfeit the lease of a commercial tenant who had failed to pay their rent or otherwise breached the terms of the lease. Forfeiture effectively meant that a commercial landlord could take back legal ownership and actual possession of their property and bring the Lease to an abrupt end. .

Before 26 March 2020, where a Tenant had not made payment of rent, most commercial landlords could use “peaceable re-entry” to re-take possession,  and change the locks where rent was in arrears thus forfeiting the lease. The Tenant then had to apply to the Court for relief from forfeiture and of course pay all outstanding rent as a condition of getting that relief. A forfeiture clause allied with the right of peaceable re-entry was a powerful tool and in many cases the mere threat of forfeiture acted as an effective deterrent against tenants  avoiding rental obligations.

The Coronavirus Act 2020 makes quite clear that commercial landlords are no longer able to exercise their right to forfeit their Lease, under section 81. This ban on forfeiture of commercial leases will remain in place until at least 30 June 2020. This date may be extended.

With the removal of this threat to commercial tenants, some may become emboldened not to pay their rent, wrongfully considering their tenure to be secure. However, whilst forfeiture is now temporarily banned, the Coronavirus Act 2020 does not suspend the obligation on tenants to continue to pay their rent or give them a rental “holiday”. All leasehold obligations remain in place but in the current climate a sensible discussion between Landlord and Tenant is key to ensuring some sensible compromise can be achieved.

It the tenant has otherwise been a reliable payer of rent; they may well be again and some rent during the next three months (and possibly longer) might be the better option for the Landlord when faced with the alternative of a building standing empty.

If there are guarantors for the rent should the tenant default that is likely to be the more productive route to recover the debt. If a Landlord forfeits the lease the lease ends and with it the obligation for the guarantor to pay anything more than the rent owed to that point.

For landlords concerned about recovering unpaid rent from commercial tenants refusing or unable to make payment as a direct result of the current pandemic, we are available to advise you through the options open to you.

Our Dispute Resolution Team will continue to provide updates and can be contacted on DRTeam@herrington-carmichael.com or 01276 686 222.

This reflects the law at the date of publication and is written as a general guide. It does not contain definitive legal advice, which should be sought as appropriate in relation to a particular matter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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