Coronavirus and commercial rent arrears… Emergency legislation known as “The Coronavirus Act 2020” (The Act) came into force on 25th March 2020, providing immediate protection for commercial Tenants.
Section 82 of the Act postpones a Landlord’s ability to exercise the right to bring proceedings against a Tenant to forfeit their lease for rent arrears until 30 June 2020. In cases where an order for possession has already been made, it also prevents Landlords from enforcing the order until after the 30 June 2020 for non-payment of rent. This means that courts will not order commercial Tenants to vacate their premises for non-payment of rent prior to this date.
What kind of Tenants can benefit from this?
These provisions apply to any lease which falls within the definition of a business lease within Part 2 of the Landlord and Tenant Act 1954. This is a tenancy where the property “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”. This will include shops, factories, offices and any commercial property of this nature.
What is considered as ‘rent’ within the Act?
The meaning of ‘rent’ in the Act has been broadly drafted to encompass any amount due that is under a business tenancy. This will therefore not include just annual rent; it is also inclusive of any service and maintenance charge, insurance fees and any other expenses that would usually be payable by the tenant. Remember a commercial lease doesn’t just require you to pay rent. It also has other payments often reserves as rent.
Are Tenants waived from paying their rent?
No. Whilst the legislation provides comfort for Tenants that may currently be struggling financially during the Covid-19 crisis, the Act does not mean that the obligation to pay rent is waived or deferred. The obligation to pay the rent over the next three months therefore remains with the Tenant. The provision will only delay the Landlord’s right to forfeiture to recover rent owed – it will not affect a Landlord’s right to claim forfeiture after the relevant period comes to an end. Tenants are still liable to pay the rent during this period and will still be liable for any unpaid sums after 30 June 2020.
There are further implications for guarantors of tenants and companies. A failure to pay rent will fall on the guarantor to make payments. These also include any service charges, insurance rent and also maintenance charges. The main thing to remember is non-payment of rent is not an option.
There are things that you can do and we have several other Legal Insights to assist you.
Although the Act provides protection from forfeiture within this period, can Landlords still use other means of recovery for unpaid sums under the lease?
Yes. The Act does not prevent a Landlord using any other methods of recovery for unpaid sums. Landlords can still utilise other remedies, such as drawing down on a rent deposit, or charging interest on any unpaid rent.
Where a Landlord’s commercial property is subject to additional forms of security, such as a guarantee, then Landlords may wish to consider seeking payment of rent arrears, costs, expenses and any interest owed by the tenant from the guarantor directly. The guarantor will be liable to cover fees defaulted by the Tenant.
Landlords could also choose to serve a statutory demand on tenants, or bring a debt claim, or exercise Commercial Rent Arrears Recovery. The best practice for Landlords is to keep a paper trail of any contact from Tenants in respect of rent and why they have failed to pay it. As this evidence is likely to be relevant in deciding or advising on how the parties can proceed later down the line.
As many Tenants will struggle to meet rent payments at this time, The Government has been clear in its guidance that constructive negotiations should take place between Landlords and Tenants to find a solution that makes commercial sense for both parties.
It is vital that Tenants and Landlords take expert legal advice when considering their options in these difficult times.
SO Legal Solicitors Eastbourne – 01323 407555
SO Legal Solicitors Brighton & Hove – 01273 069920
SO Legal Solicitors Hastings – 01424 709050
SO Legal Solicitors Uckfield – 01825 729840
SO Legal Solicitors Notting Hill – 0203 9677700