The Coronavirus Act 2020 ("Act") came into force on 25 March 2020, appropriately enough on the March quarter day given that it includes (at section 82) a provision that prevents a landlord from enforcing a right of entry or forfeiture under a business tenancy for non-payment of rent. At present this restriction applies only for the period from 26 March to 30 June 2020, although the Act contains the ability for the Government to extend that period if it deems it necessary to do so.
Whilst the landlord’s right to forfeit the lease is only suspended, the Act expressly providing that no conduct by a landlord other than an express waiver in writing, is to be regarded as waiving the right of forfeiture, the question for landlords is what other options remain open to them at the moment if a tenant fails to pay the rent.
The issues that both landlords and tenants face are far from straightforward, and in many cases it is unlikely that a landlord would have considered forfeiture as a good option in the current situation irrespective of the Act given the concerns that inevitably exist about the economic fallout from a prolonged period of lockdown.
Whenever a landlord is considering forfeiture proceedings, he will need to balance the commercial benefit of evicting a tenant who is not paying rent against the consequences that he will face in taking back the property. Not only will the landlord face immediate additional costs, including enforcement costs, rates (subject to any reliefs that are available), security costs and ongoing maintenance costs which can no longer be recovered through the service charge, but he will also need to consider just how easy it will be to find a new tenant.
In practice it seems unlikely there will be much chance of finding a new tenant as long as the current restrictions on movement apply. Even when those restrictions are eventually relaxed the market is unlikely to be strong, meaning that finding a new tenant is likely to be very difficult for most landlords. In addition, if a new tenant can be found, any such tenant would be likely to try and negotiate a rent-free period and/or a lower rent than is currently being paid.
Whilst a limited number of businesses (supermarkets for example) are doing well in the current crisis, most tenants who approach their landlords for assistance on the rent front are likely to be genuine, which means that sensible discussions between the parties should almost always be the starting point. Landlords who might normally be concerned that any dialogue with a tenant about payment once the rent has fallen due could give rise to a right to forfeit the lease, need not fear that in the light of the express provisions in the Act which preserve a landlord’s right to forfeit the lease in these circumstances.
If a tenant has previously paid rent on time, and has otherwise been a good tenant, then it is likely to be in the interests of the landlord to try and assist the tenant, at least insofar as he can, in the hope that both parties can emerge from the current situation solvent and trading. The landlord can engage in discussions safe in the knowledge that the rent remains due, interest is likely to be accruing on the debt under the terms of the lease, and if discussions do fail, then he will still have a right to forfeit the lease after 30 June (or such later date as the Government may fix.)
We consider below some of the options open to the parties if they want to try and find a mechanism which might enable them to continue operating during and after the current crisis by way of changes to the strict legal obligations under the lease, as well as those remedies (apart from forfeiture of the lease) available to landlords where tenants have failed to pay the rent, or committed another breach of the lease terms, and agreement cannot be reached between the parties.
For further information regarding the issues raised here, or for more specific advice, please contact a member of the Property Litigation team.