Commercial leases: ban on forfeiture rights for non-payment of rent extended again

The moratorium on commercial landlords exercising forfeiture rights for non-payment of rent will be extended in England until 31 March 2021, according to a government press release today.

The ban, which was due to end on 31 December 2020, will now be extended to just over a year in length in total, since the relevant section of the Coronavirus Act 2020 came into force on 25 March this year.

The government says it will also extend the current restrictions on statutory demands and winding up petitions, as well as Commercial Rent Arrears Recovery (CRAR) for the same period. Details of these restrictions are in our previous update.

Here we explain the changes and examine the likely impact of this extension on commercial landlords and tenants.

Background

We have previously written about how the Coronavirus Act 2020 contained a moratorium on commercial landlords’ forfeiture rights for non-payment of rent. Initially, the moratorium was to last until 30 June 2020, which was subsequently extended to 30 September 2020 and then 31 December 2020. Now the extension will be lengthened again, to the end of March 2021.

The March quarter day

Importantly, with the extended ban running to 31 March, it will include the traditional March quarter day, meaning many landlords will not receive full, or any, rent on that date. This will come as a blow to landlords who will have been hoping to return as soon as possible to a period of more stable rental income.

The extension provides another three months of safety from forfeiture for non-payment of rent for commercial tenants, whilst landlords’ enforcement options will remain curtailed for the same period.

What options do landlords currently have?

Landlords should communicate with their tenants to establish whether they will experience difficulty in paying their rents and to seek to come to mutually agreeable arrangements where possible.

If a landlord is forced into considering enforcement action, limited options do remain open to them.

As the rent still remains due, landlords could charge interest on any unpaid sums at the rate provided for by the lease.

Landlords could still pursue a debt claim in the County or High Court and seek a money judgment for non-payment of rent and we have seen an increase in these claims in recent weeks.  However a debt action may incur time and cost and may not produce payment quickly or at all.

The automatic stay on possession proceedings, which we originally covered here, ended on 20 September 2020. Possession claims not based on forfeiture for non-payment of rent may now be made and/or re-activated. Certain procedural steps are required to reactivate possession claims which were previously stayed. Procedural changes also apply both to existing possession claims and the issue of new claims.

The potential risks and rewards of any enforcement action would need to be carefully considered. These might include potential negative public relations as a result of taking action against a struggling tenant at a time of crisis. Engaging with tenants in the first instance is likely to be landlords’ best option.

Code of practice and guidance for landlords and tenants

The government is encouraging landlords and tenants to work together to protect viable businesses, in accordance with the recently published Code of Practice for commercial property relationships during the COVID-19 pandemic.

The latest press release promises additional guidance to support negotiations between landlords and tenants will be published early next year.

A wider review of commercial landlord and tenant law

The government has also announced a review of commercial landlord and tenant law, which it refers to as “outdated” to address concerns that the current framework does not reflect the current economic conditions. The review will be launched next year and will look at “a broad range of issues” including:

• The security of tenure regime under Part II of the Landlord and Tenant Act 1954.
• Different models of rent payment.
• The impact of Coronavirus on the market.
• How to enable better collaboration between commercial landlords and tenants.
• How to improve the leasing process to ensure our high streets and town centres thrive as we recover from the pandemic and beyond.

How can we help?

Now more than ever, specialist advice is important to navigate the maze of laws, regulations and procedural rules around landlord and tenant negotiations and disputes.

TLT’s transactional and dispute resolution real estate lawyers are experienced in the full range of landlord and tenant matters and remain on hand to assist at this time.

Contributor: Matt Battensby

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at December 2020. Specific advice should be sought for specific cases. For more information see ourterms & conditions