Coronavirus Act 2020: How does this affect commercial tenancies?
How has the coronavirus pandemic affected commercial property tenancies? Tilly Bailey & Irvine Solicitors explain…
The Coronavirus Act 2020 became law on 25 March 2020, and was introduced to provide legal measures to allow public bodies in the UK to effectively respond to the current pandemic.
Whilst the Act legislates over many different areas, commercial landlords and tenants will be keen to understand what this means for their leases.
Section 82 of the Act states that:
“A right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.”
What does this mean for landlords?
Practically speaking, this means that a landlord of commercial premises cannot forfeit the lease (i.e. terminate the lease and take back possession of the premises) as a result of the tenant failing to pay its rent during the relevant period. Currently, the relevant period is 26 March 2020 to 30 June 2020. However, this period may be extended on more than one occasion (if required) by the Secretary of State.
If forfeiture proceedings had already been commenced prior to the relevant period, then any order for forfeiture which is granted cannot require the tenant to vacate the premises during the relevant period.
It should be noted that Section 82 merely delays a landlord’s right to forfeit the lease for non-payment of rent, and proceedings can be commenced and enforced after the relevant period.
Does Coronavirus Act affect commercial tenants?
Although from an initial glance, the Act may appear to offer some protection to commercial tenants during these unprecedented times, the Act does not lessen the tenant’s obligations under the lease.
The tenant is still obliged to comply with the terms of the lease and to pay the rent. Tenants should therefore continue to pay all rent due under the lease (which includes all sums due as rent i.e. service charge, insurance etc). Any rent which is due but not paid will continue to accrue and will eventually need to be paid (together with any interest which is payable under the lease).
In the event that a tenant is unable to pay rent, it should contact the landlord to discuss the possibility of a rent holiday or suspension. Although the landlord is not required to grant a rent concession, in some circumstances it may be commercially sensible to do so. If a rent concession is agreed, it is important for both parties to ensure that any concession is carefully documented to ensure that their position is formalised.
Tenants should also check the terms of the leases to ascertain whether there is any upcoming right for the tenant to terminate the lease (a break clause). Any tenant intending to exercise its right to terminate the lease should seek legal advice prior to doing so to ensure that any notice served is legally effective.
How does this affect rent agreements?
Unless a rent concession has been agreed with the tenant, landlords should continue to accept and demand rent throughout the relevant period to ensure that their position is protected.
It is also worth noting that section 82 of the Act only postpones the landlord’s right to forfeit on the basis of non-payment of rent, and therefore the landlord is still able to exercise its right to forfeit for any other ground provided for within the lease (for example, the tenant’s insolvency or a breach of the terms of the lease).
Section 82 of the Act also confirms that a landlord will not be able to oppose a tenant’s application for a new lease due to the tenant’s failure to pay rent during the relevant period, which appears to go some way to protecting tenants in the future.