Commercial leases: ban on forfeiture rights for non-payment of rent extended to end of 2020

The moratorium on commercial landlords exercising forfeiture rights for non-payment of rent will be extended in England until at least 31 December 2020

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

What is the background to this?

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. This will now be extended further, to 31 December 2020.

What is the significance of 31 December 2020?

The extension to the end of this year 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.

Importantly, the extension goes beyond the traditional December quarter day, so that the moratorium will now apply for both the September and December quarter days, at least. This will come as a blow to many landlords who will have been hoping to return as soon as practicable to a period of more stable rental income.

What about the other UK jurisdictions?

Wales has already extended the ban on the exercise of forfeiture rights until at least 31 December 2020.

In Northern Ireland, the emergency provision for tenants having difficulty paying rent in commercial leases is due to end on 30 September 2020. It remains to be seen whether or not the measures will be extended there.

In Scotland, the period of notice required for termination of a commercial lease for non-payment of rent was initially increased from 14 days to 14 weeks. This provision was originally due to expire on 30 September 2020. However, the Scottish Government are currently considering measures that, if passed, will extend the 14 week notice period until 31 March 2021. The regulations are expected to be passed by the Scottish Parliament shortly.

Are possession proceedings still stayed in England? Does this extension apply to the stay on possession proceedings too?

The stay on possession proceedings, which we originally covered here, is currently due to end on 20 September 2020. There is no indication that this will be extended.

The stay is wider than the forfeiture moratorium in the sense that it covers nearly all possession proceedings, not just for forfeiture for non-payment of rent.

Once the stay is lifted, certain procedural steps will be required to reactivate stayed possession claims. Procedural changes will also apply both to existing possession claims and the issue of new claims.

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.  However a debt action may take time and cost and may not produce payment quickly or at all.

Assuming the stay on possession proceedings is lifted on 20 September, possession claims not based on forfeiture for non-payment of rent will be able to be made and/or re-activated.

There are currently restrictions on landlords’ ability to present winding up petitions against their corporate tenants, which are due to expire on 30 September 2020. The government announced yesterday that it is considering extending this restriction also, but it remains to be seen whether this will be taken forward.

Landlords’ inability to exercise Commercial Rent Arrears Recovery (CRAR) is also to be extended. The minimum periods of unpaid rent required for CRAR to be exercisable are to be increased to 276 days’ rent where the notice of enforcement is given on or before 24 December 2020, and 366 days’ rent where the notice of enforcement is given on or after 25th December 2020.

CRAR can only be exercised against arrears of principal rent; not service charge, insurance rent, or other charges, even if they are reserved as rent under the lease.

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.

What action should landlords and tenants be taking?

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 Code encourages transparency and openness as well as a unified approach in dealings between landlords and tenants. It gives practical examples of various types of concession that the parties to a lease could agree.

The Code also suggests that any newly agreed arrangements should protect tenants against forfeiture (provided the new terms are adhered to) even after the forfeiture moratorium has eventually been lifted.

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 September 2020. Specific advice should be sought for specific cases. For more information see our terms & conditions.