The Government has announced that it will introduce emergency legislation to protect, from eviction, commercial tenants unable to pay rent because of the coronavirus outbreak.
The announcement comes as part of a package of measures that the Government is introducing to assist businesses through this difficult time.
Under most leases, the rent is payable quarterly in advance on specific “quarter days”. The next quarter-day is 25 March and over the last week, we have been advising our landlord and tenant clients in relation to concerns about payment, or rather non-payment, of this quarter’s rent.
Understandably, many tenants who are struggling with cashflow have already engaged their landlords in discussions to agree an arrangement in respect of future rental payments. No doubt this will, and should, continue. However, if agreement cannot be reached, the emergency measures introduced by the Government will mean that some tenants will not be faced with eviction if rent is not paid.
The government proposals are set out in the coronavirus Bill.
What does the Bill say?
A commercial landlord may not enforce a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent by court action or otherwise, from the date of the legislation coming into force to 30 June 2020 or such other date as may be specified by the government (the relevant period).
Which tenancies are affected?
The draft bill confirms that the new law will apply to all business tenancies, whether contracted out of the protection of the Landlord and Tenant Act 1954 or not. It also prevents the forfeiture of superior leases where there is a subtenant in occupation.
What payments does it relate to?
The legislation describes “rent” as any sum a tenant is liable to pay under a relevant business tenancy. Therefore, as well as rent, the landlord will not be able to forfeit non-payment of other sums, such as service charge.
What happens to the right to forfeit?
During this period, except if the landlord gives an express waiver in writing, no conduct or action by the landlord will amount to a waiver of the right to forfeit for no payment of rent. This means that the right to forfeit is preserved, but put on hold, and can be actioned for non-payment of rent after the relevant period has expired.
Other remedies for no payment of rent remain available to landlords. It seems that these steps can be taken during the relevant period without amounting to an express waiver of the right to forfeit for non- payment of rent. This also means that the landlord can discuss the surrender of the lease with the tenant and agree payment plans without having waived the right to forfeit after the relevant period ends.
What happens before the Bill is passed?
If landlords have rent outstanding for the December quarter or monthly payments and the right to forfeit has already arisen, then they can still forfeit. They can instruct a bailiff to re-enter the premises as soon as possible before the Bill is made into law.
What happens after 30 June 2020?
The tenant will still be liable for the rent after the relevant period has expired. The legislation will put in place a rent “holiday” rather than a complete waiver of the tenant’s obligation to pay rent for the relevant period.
The Bill is likely to be passed before any right to forfeit for non-payment of the March quarter rent arises. This is because the right to forfeiture arises after a period of days of non-payment, most usually 21 days. The June quarter’s rent will be payable on 24 June 2020 and the (current) relevant period expires on 30 June 2020. This means that, in most cases, the right to forfeit for the June quarter’s rent will arise after the relevant period.
The relevant period may be extended by the Government.
After the relevant period (and any extension), the ban on forfeiture will come to an end and tenant will face forfeiture for non-payment of the rent during the relevant period (and any extension) and will need to make payment of the rent for the next quarter. This will very difficult for tenants who have not been able to trade during the relevant period (and any extension), but they may have been able to access the Government’s other financial support measures in the meantime.
As for landlords, the government has confirmed that whilst “commercial tenants will still be liable for the rent after this period, it is also actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them”.
This suggests that further measures may be announced to specifically assist commercial landlords who will suffer cashflow problems as a result of this new legislation. The measures will, of course, sit alongside the Government’s package of financial support already announced.
The new legislation does not prevent landlords and tenants from entering into their own agreement about the payment of future rent.
Parties to a lease may still want to do this in order to agree the specific terms of any rent holiday. For example, if the parties agree that the landlord will take no steps to recover the rent during the relevant period, how this will be paid once the holiday is over. Some tenants will find it difficult to pay the three months’ rent for the period of a holiday and the June quarter’s rent together.
Therefore, tenants may want to agree staged or phased payments. In other circumstances, tenants may want to agree a complete waiver of the rent payment which means it will not be liable to pay anything for a period of three months or longer.