24 March 2020

COVID-19: Forfeiture moratorium for UK commercial leases

The majority of leases in England require tenants to pay one quarter of the rent on 25 March with landlords typically being able to forfeit the lease by peaceable re-entry if the rent is not paid within 14 or 21 days.

Measures announced by the Government yesterday to assist commercial tenants during the Covid-19 pandemic extend to preventing landlords forfeiting for unpaid rent (including service charge payments or other sums reserved as rent) in the next 3 months. Details will be set out in the upcoming Coronavirus Act and the provisions will assist all forms of business tenants and not just retailers.

At the moment the restriction will come into force when the legislation is passed (it is expected imminently) and last until 30 June 2020 but there is flexibility for the Government to extend the date.

For any forfeiture proceedings currently going through the courts, any order for possession will be delayed until after 30 June 2020 (or later if the Government extends the period).

While landlords will not be able to forfeit, they will not be treated as having waived the requirement for tenants to pay rent (or the ability to forfeit after 30 June 2020).

Landlords still retain their other remedies for recovering unpaid rent but, with shops and offices closing down in line with Government guidance, commercial rent arrears recovery will not practicable and landlords are left with debt claims or placing their tenants into insolvency. Consequentially, discussions between landlords and tenants to structure rental payments are very much the way forward for the moment.

Forfeiture for other breaches are untouched. In the current climate, however, taking back possession of a property that will remain empty, and the ensuing business rates and insurance and security liabilities that will fall on landlords, is very unattractive for landlords.

Lastly, landlords will not be able to use delays in tenants paying rent over the next three months as a reason for opposing a lease renewal under the Landlord and Tenant Act 1954 on the ground of persistent delays in paying rent.

Disclaimer

The current global crisis is evolving rapidly, and the rules and guidance for individuals, companies and other entities to manage its implications are similarly fast moving. Notes such as this may be out of date almost as soon as they are published. If you have any questions prompted by this article or on any other matter relevant to you, please get in touch with your usual contact at Forsters.

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