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News and Opinion from Edward Harte Solicitors

Corona Virus Act 2020 – Effects on Commercial Landlords and Tenants

Section 82 of the Corona Virus Act 2020 has placed restrictions on forfeiture for non-payment of rent in England and Wales of commercial premises from 26March to 30 June 2020.  The Government also has the ability to extend that period if they consider it appropriate to do so.

This means that Landlords cannot take steps to forfeit a ‘relevant business tenancy’ on the grounds of non-payment of rent and other sums falling due under the Lease.  In terms of existing proceedings where those forfeiture proceedings were commenced before 26 March 2020, any date for Possession cannot be before 30 June 2020.  In addition, you cannot enforce any order for Possession pursuant to forfeiture proceeding by way of Warrant or Writ of Possession, as they have been stayed for 90 days from 27March 2020.  However, Claims for injunctive relief are not subject to the stay

Does this affect all ‘rents’?

Yes ‘rent’ for the purposes of Section 82 is defined as including ‘any sum a Tenant is liable to pay under a relevant business tenancy’ and therefore includes service charge and insurance rents.

Which tenancies are affected?

It is any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the Tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.  The protection also applies to Tenants who have sublet their premises and also to Leases even if they have contracted out of the security of tenure provisions under the 1954 Act.

Which tenancies are not affected?

  • Under this provision residential tenancies, but please see my earlier blog for ‘effects on residential tenancies’.
  • A tenancy of an agricultural holding
  • A farm business tenancy
  • A tenancy granted for less than six months and does not contain a provision for renewing the term or for extending it beyond the six months from its beginning or the tenant has not been in occupation for a period which, together with any period during which any predecessor in the carrying on of the business carried on by the tenant was in occupation, exceeds twelve months.

What is the effect on existing Notices seeking Possession?

Those matters cannot progress until after 30 June 2020. 

Will dealing with the Tenant during this period waive a Landlords right to forfeit for non-payment of rent?

During the period from 26 March to 30 June 2020 a Landlord will not be deemed to have waived its right to forfeit for non-payment of rent, unless it gives an express waiver in writing.

What the effect on renewals under Part 2 of the Landlord and Tenant Act 1954?

If the Tenant applies for a new tenancy, then the Landlord would not be able to argue that the Tenant ought not to be granted a new tenancy in view of his persistent delay in paying rent which has become due if those delays in rent payment are between 26 March and 30 June 2020. 

What are the limitations of prohibition?

Landlords are still able to make other enforcement action for non-payment of rent.  For example, they could serve a Statutory Demand, follow the commercial rent arrears recovery process or issue Court proceedings.  Even under these new provisions of the Corona Virus Act 2020, Tenants still remain liable to the Landlord for rent and where they can they should continue to pay rent as normal.

Can the Tenant terminate the Lease due to Force Majeure and Frustration?

In English law, Force Majeure provisions are purely contractual.  Standard form Commercial Leases do not generally incorporate specific Force Majeure Clauses.  Even where there is a Force Majeure Clause, whether this will be triggered by the Corona Virus pandemic will depend on the interpretation of the Lease and the circumstances of the particular event.  Force Majeure Clauses are strictly interpreted by the Court.

If there is not a Force Majeure Clause, a Tenant could argue the Lease has been frustrated due to the Corona Virus pandemic however, currently in the English Courts, no one has yet successfully argued that a Lease has been frustrated.  Frustration has a high threshold to meet.  Firstly the event has to occur after the Lease was entered into and must be so fundamental that it goes to the route of the Lease and renders performance of the Lease impossible, illegal and makes it radically different from the one contemplated by the terms of the Lease.

In the current circumstances where the closure or business shutdown remains a short period in the context of the whole term of the Lease it is unlikely that the Courts would treat the Lease as frustrated.  If a Lease or Licence has been granted for a short duration only there may be more scope to run a successful argument however, it is unclear what the remedy would be in such circumstances. 

Therefore the majority of commercial tenants are unlikely to terminate their Leases via the doctrine of frustration or contractual provisions relating to Force Majeure.

If you are a Tenant and would like to terminate your Lease then you should check your Lease to see whether there is a break clause, which you could exercise.  If there is not then you would need to enter into discussions with your Landlord regarding a possible surrender.

Practical Steps for Landlords/considerations

The Government guidance recommends that where the Corona Virus has had an effect on the tenant’s operation of its business or ability to pay its rent, the parties should engage with each other as soon as possible to navigate an appropriate agreement.  What is an appropriate agreement will vary depending on the contractual obligations, the type of premises, the business operated from the premises and the support available from both the Landlord and Tenant.  In light of these guidelines, then both the Landlord and Tenant should be aware of potential reputational consequences for failing to engage with each other.

I would advise that Landlords should liaise with their Tenants as early as possible and establish whether they will have difficulties meeting their rental obligations.  Landlords could consider temporary rental concessions such as reduced rent on monthly rental payments.  Tenants should also consider whether there is any Government assistance available to them to cover the rental payments.  It may well be that the Tenants business interruptions insurance will pay out to cover rental payments.  One other consideration is whether a deposit has been paid and whether this can be drawn upon.  It maybe that the Parties can agree that the Tenant does not have to top up the deposit until a mutually agreed date in the future.  In the event that the parties are able to agree temporary concessions then these should be dealt with by way of side letter to be appended to the Lease.

It would be prudent for the Landlord to establish whether the building is unoccupied and ensure that any requirements of the insurers are complied with.

One further step for a Landlord to take is to serve a Section 17 Notice on any guarantor and for/any former Tenant who remains liable in respect of rental arrears.

It is likely that Landlords are going to have difficulty servicing loan obligations during the relevant period and Landlords should liaise with their finance provider to ascertain whether it is possible to take a repayment holiday or agree amendments to the terms of their facility agreement.

If you are a Landlord who has a contract with service providers to provide services under the Lease, you may have difficulties in meeting your payment obligations to them as a result of your Tenants failure to pay service charges during the relevant period.  Again, my advice is that you should liaise with your suppliers to confirm whether any concessionary arrangements are possible.

Contractual Obligations Pursuant to the Lease

Leases typically require Tenants to notify the Landlord in the event the premise will be unoccupied and to comply with the requirements of the insurers in relation to the premises.  Often Building Insurance policies require the insurers to be notified if the premises are vacated and insurers themselves have particular requirements in relation to premises that are unoccupied.  For example, this could include taking the appropriate and necessary security measures, turning off utilities and regular inspections.  Therefore, if you are a Tenant and you are prevented from occupying the premises you need to notify your Landlord as soon as practicable.  If you are a Landlord and responsible for the insurance of the Building (which is the most common position), then you should liaise with your insurers and promptly notify your Tenant of the insurer’s requirements in writing.  Thereafter, both the Landlord and the Tenant should agree how insurance requirements can be complied with and achieved whilst the premises is unoccupied.  If there is any increase in the insurance premium then usually the Tenant will be liable for any such increase under the terms of the Lease and therefore if you are a Landlord, you should notify your Tenant as soon as possible. 

Your Lease may contain rent suspension provision however, they are unlikely to be triggered by the Corona Virus pandemic.  These Clauses are usually only triggered if a Tenant is unable to occupy or access the premise due to physical damage or destruction by an insured risk or uninsured risk.  If you are a Tenant, you should check the terms of your business interruption insurance instead to see if you can make a Claim.

Whilst the Government has relaxed planning laws to allow restaurant premises to operate as takeaways, you need to check your Lease if there are any such restrictions.  If there are, then you should liaise with your Landlord to see whether or not they will consent to relaxing such restrictions in order to ensure you can generate income.  If such an agreement is entered into, then you should enter into a personal side letter.  In addition, you may want to agree that this is only for the period for when the Government restrictions are in place. 

Both Landlords and Tenants need to ensure that they comply with the law and what is set out in statute.  For example, they may be obliged to close the business pursuant to the new regulations.  If you are a Tenant and continue to trade in breach of those requirements then your Landlord can take action to force you to close the premises and bring a claim for breach of your obligation to comply with statute.  Moreover, in the event that Leases contain a ‘keep open’ Clause i.e. the Tenant is under an obligation to keep the premises open, then if doing so would be in breach of any statute then it is likely that statute would take precedent and the Premises must close.

Urgent, essential health and safety repairs need to be carried out as Landlords and Tenants remain liable to ensure that their properties meet the statutory health and safety requirements.  If repairs are non-urgent or essential then Parties may agree not to enforce their contractual obligations for repair until a future date when social distancing measures no longer apply.  You should consider your individual Lease particular circumstances.  It is likely that a Tenants statutory obligation relating to social distancing will override any contractual obligations to carry out non-urgent or essential repairs.  If you are a Tenant and you do need to operate premises then you should ensure that you comply with the Government guidance, which has been issued from the Department of Business, Energy and Industrial Strategy Public Health England.

If either the Landlord or Tenant are not operating from their usual business premises, both of them need to ensure that they put in place procedures to receive any Notice that may be served on them.  You may consider accepting services of Notice by email for this period ensuring that appropriate precautions are taken to ensure that any emails serving a Notice will be received i.e. using essential email addresses that can be accessed by several people in the business.

If you need any further information or details, please contact Samantha Dawkins of Edward Harte Solicitors by email on: sdawkins@edward-harte.co.uk or by telephone on 01273 662750.