On 23 March 2020 the UK government required all non-essential businesses to close their premises and the general public was advised to stay at home unless making essential journeys. This was made law on 25 March 2020 via the Coronavirus Act 2020, enforceable from 1 p.m. on 26 March 2020. Whilst some types of non-essential businesses have subsequently been allowed to reopen, social distancing measures still apply, and there are a number of businesses who are still required to remain closed. It is hoped that the remainder of non-essential businesses will be able to reopen by July, but this is not certain. The government is also considering further measures pursuant to the Corporate Insolvency and Governance Bill 2019-21.
As a result many businesses are facing an uncertain future and this extends to their property holdings, whether they are landlords or tenants and whether they are in the commercial or residential space.
The Coronavirus Act 2020 alongside the proposals in the Corporate Insolvency and Governance Bill 2019-21 do however provide some relief for tenants (and therefore some restrictions on landlords). This note considers some of those below:
Commercial Property
Most commercial leases contain a landlord’s contractual right to forfeit the lease and re-enter the premises, usually on the basis of non-payment of rent, breach of the lease and tenant insolvency.
The Coronavirus Act 2020 introduces a 3 month suspension of the landlord’s right to forfeit for non-payment of rent for business tenancies (as defined under the Landlord and Tenant Act 1954), starting on 26 March 2020. At the time of writing this has not been extended. However, an extension was announced on 5 June for the relief measures for residential tenants so it may well be that this 3 month suspension of forfeiture rights for commercial property will also be extended in the coming days.
This suspension does not however remove the requirement to pay rent, or remove any of the landlord’s other remedies (such as damages etc.); it simply prevents forced ejection from the premises, for a period of 3 months. The rent due in that 3 months is still due, and the forfeiture right will be reinstated at the end of the 3 months and would be applicable to any rent due but not paid at that time (i.e. including during the 3 month suspension).
This suspension also does not apply to any rights of forfeiture for anything other than non-payment of rent. Accordingly, any other heads of forfeiture as set out in the lease, such as other breaches of the lease, or insolvency of the tenant will still attract a landlord’s right to forfeit the lease. It is also unclear whether this applies to headleases, though the current thinking is that it does, provided that some part of the premises is occupied for business purposes.
The proposals in the Corporate Insolvency and Governance Bill 2019-21 go further, and apply a temporary moratorium on the use of statutory demands and winding up petitions in relation to Covid-19 related debt. The bill is due to have its second reading at the time of writing, and therefore is not yet in force. This suspension of debt recovery rights is due to apply during a period starting on 27 April 2020 to the later of 30 June 2020 and one month after the act comes into force.
Further, the government is also considering introducing secondary legislation to prevent the use of the commercial rent arrears recovery service unless there is at least 90 days of unpaid rent owed, as well as the introduction of a code of conduct between landlords and tenants.
Residential Property
Tenants of residential property generally have greater statutory protection from eviction than commercial tenants and as a result those leases have different, statute imposed, termination arrangements already.
Those provisions continue to apply in the current situation, and have been further enhanced by the Coronavirus Act 2020, which, broadly, extends the notice period for evictions to 3 months for all types of residential tenancy. Notices can still be served during this time; it is just that the period in which the tenant may continue to remain in the premises after the notice to quit has been extended. It was further announced on 5 June 2020 that this stay on evictions of residential tenants was to be extended to 25 August and that no courts would hear eviction proceedings until then. The detail of how this extension is to apply was not available at the time of writing.
Clearly none of these measures are a complete solution and many tenants will be looking for additional methods of mitigating their losses, from termination of their leases to rent suspension. Tenants may also be concerned about provisions of their leases which would seem to be in contravention of the current legislation, such as keep open clauses.
Landlords will also be concerned about their income flow as the measures described above effectively remove any of the tools at their disposal to force a tenant to pay rent. There are reliefs in place for certain landlords to obtain 3 month mortgage holidays where they have debt on the property, which will alleviate some of the difficulties for buy to let landlords who have residential mortgages. However, this will not be the case for all landlords, and therefore, again is not a complete solution but does push some of the burden of any reduction in rental payments onto lenders. It is currently unclear however whether these mortgage holidays will also be extended in light of the extension of the bar on eviction of residential tenants.
We are happy to discuss any particular concerns in detail and if you have any questions concerning the material discussed in this client alert, please contact the following members of our Real Estate practice.
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