Coronavirus Act 2020: Commercial Lettings
March 31, 2020
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Section 82 of the Coronavirus Act 2020 (“CA 2020”) sets out emergency measures to restrict forfeiture of Commercial Business Tenancies in England and Wales where tenants find themselves in financial difficulties. The relevant period for these provisions lasts from 26 March 2020 until 30 June 2020 but is subject to review and may be extended. In addition to changes made by the CA 2020, Practice Direction 51Z of the Civil Procedure Rules has now come into force, which effectively stays all active possession claims for 90 days.
The relief offered to business tenants is a restriction on forfeiture. However, business tenants remain liable for payment of all rent throughout this period and any missed or delayed payments will still need to me made up to ensure long term security beyond 30 June 2020. Therefore, tenants should not view this as a rent holiday, but a stay of execution to allow them time to claim whatever financial support is due to them and put matters in order to enable them to continue with their business longer term.
What protection does s82 provide?
Section 82 of CV 2020 provides a moratorium in respect of forfeiture for non-payment of rent under relevant business tenancies. “Rent” is defined to include any financial payment due under the relevant lease. This would include service charges, interest and administration fees as well. It may also be considered to include amounts payable if the landlord has exercised its rights under a Jervis v Harris clause and effected repairs at the expense of the tenant.
There is a possibility that business rates may also be caught under the legislation as the definition does not limit this to sums payable to the landlord. Further clarification will come in time on this point.
Although landlord’s remedies are restricted in relation to default of financial obligations, there is no constraint at all in respect of forfeiture for other non-monetary breaches. Therefore, a landlord may potentially forfeit a lease for any other breaches in the ordinary way, subject to complying with all the normal requirements to serve a section 146 notice as a precursor to forfeiture. However, issues may well arise in relation to the coronavirus concerning service and how much “reasonable time” a landlord must allow to a tenant to remedy any remediable breach under section 146 of the Law of Property Act 1925.
Therefore, although section 82 affords business tenants some measure of relief, it would not prevent a determined landlord from still seeking forfeiture of the lease on other grounds. That said, in non-rent cases, the court has a broad discretion in relation to granting relief from forfeiture and the courts are unlikely to be receptive to claims by landlords which stem from coronavirus-induced situations. They may still be willing to support a landlord’s forfeiture though in cases where the underlying tenant breaches are entirely independent of the current public health emergency.
Which tenancies are covered?
A “relevant business tenancy” is considered to be any business tenancy where the demised premises or any part thereof is occupied either by the tenant or by any lawful occupier and would include a sub-tenant or licensee.
If a business tenant is not trading from the premises because of coronavirus and the associated statutory restrictions (Health Protection (Coronavirus, Restrictions) (England) Regulations 2020, SI 2020/350) the it is likely to be sufficient to establish occupation if they can show they intend to return to the premises once the restrictions are lifted.
The position for businesses who have voluntarily closed their doors is less clear. It is likely that courts will take a sympathetic view in these cases too and regard such tenants as remaining in occupation, particularly if there are still possession in the property and there is an intention to return to trading from the premises once the crisis is over. There is more room for argument in these circumstances.
Are there limits to the protection offered by s82 CV 2020?
The CVA 2020 does not extinguish the tenant’s liability for the rent or other sums due under the lease. These remain payable in full.
The statute does not deny the landlord the ability to exercise any other lawful remedies available to it, besides forfeiture. These may include issuing a statutory demand and pursuing an insolvency route against the non-paying tenant. Having said that, on Saturday, 28 March 2020, Alok Sharma, Secretary of State for Business, Energy and Industrial Strategy, announced that the Government will bring into law in “the coming weeks” changes to the UK insolvency laws to help struggling British businesses stay afloat and give them “greater flexibility” during the coronavirus pandemic.
The Insolvency Service have, over the weekend, issued further information on the Government’s proposed changes. They include an intention to put in place a moratorium for companies giving them breathing space from creditors enforcing their debts for a period of time whilst they seek a rescue or restructure. There are also plans to put in place protection of their supplies to enable them to continue trading during the moratorium.
There have also been warnings issued by the Courts of extended processing time for debt claims and a request has been made that claims should not be submitted where it is possible that they can wait until after the crisis has passed.
When the moratorium under s82 comes to an end a landlord will, if it then desires, be able to forfeit the lease for non-payment of all the accrued arrears. As a result, section 82 gives a tenant just a short window during the coronavirus outbreak in which it is immune from forfeiture if it fails to pay its rent but does not give it any long-term relief.
The tenant will not be able to rely on any action or inaction by the landlord during the relevant period, such as not issuing demands for successive payments of rent, as waiving the right to forfeit for earlier non-payment.
What happens to existing possession proceedings and orders?
Proceedings issued before 26 March 2020 are subjected to the same restrictions relating to the ability to recover possession earlier than the expiry of the relevant period, which is currently 30 June. Therefore, any possession orders issued must expire no earlier than 30 June or such later date as may be substituted by regulations.
The introduction of Practice Direction 51Z of the Civil Procedure Rules on the 27 March 2020 has taken this a step further than the CA 2020 and has now effectively stayed all active possession claims for 90 days.
Where an order was made before 26 March 2020 and the date of possession will expire within the moratorium window the date of effective possession will be delayed. The procedure varies depending on which court granted the order.
For High Court Possession Orders, the tenant must apply to extend the order and the Court must allow an extension to the end of the relevant period. The extension is not automatic though, but if an application is made the order to extend is mandatory.
If the order has been made in the County Court, then it is to be treated as extended so as to expire at the end of the relevant period.
What should tenants do if they cannot make payments due under a lease?
If a tenant finds itself in financial difficulty, then it is vital to open a dialogue with the landlord as quickly as possible after the potential for default is identified. While landlords have their remedies curtailed for a period of time, after the relevant period comes to an end, those remedies will return and tenants who have allowed arrears to escalate will then face the consequences of doing so unless an agreement has been reached with the landlord with regards to repayments.
The Government has asked landlords to by flexible where possible. However, it is notable that no financial support has been extended to commercial landlords to assist them in accommodating tenant requests. In spite of that, many are sympathetic to the situation faced by their tenants and, where possible, are agreeing that payments can be delayed and repaid over an extended period.
If such agreements are made then, for the protection of both landlords and tenants, it is vital that they are properly recorded.