Harrison Drury’s Hayley Bamber and Abbie Seed look at how the Coronavirus Bill, recently proposed by the government, will help support landlords and tenants regarding lease payments and protect residential tenants from eviction.
Many landlords and tenants alike will be concerned about what the recent government ‘lockdown’ will mean for them going forward. The Coronavirus Bill sets out a number of reassuring provisions for both landlords and tenants.
As soon as the Coronavirus Bill receives Royal Assent, commercial landlords will not be able to forfeit a lease for non-payment of rent, and residential landlords will be prevented from evicting tenants for the next three months.
This moratorium period will expire on June 30, 2020, but the government has made provision for this to be extended should circumstances require it.
What does this mean for commercial landlords and tenants?
Commercial tenants will be reassured in the knowledge that, should they be unable to make rent payments over the next three months, the landlord will not be permitted to forfeit the lease and take possession of the premises, despite the terms of the lease itself.
Tenants should not, however, view this as a rent-free period, and should attempt to engage in discussions with their landlord in order to agree the terms of a rent deferral and on how the missed rent payments will be made up once the moratorium is lifted. Although landlords will not be able to forfeit the lease during this three-month period, tenants should be aware that once the moratorium is lifted, the landlord will be free to forfeit the lease in accordance with the lease terms if payments have not been made.
It is therefore worth making every effort to put in place a rent deferral agreement to ensure that you do not lose your business premises.
This legislation will ease cash flow within businesses and will be welcomed by all businesses forced to shut ahead of the next quarterly rent date on March 25, 2020.
While landlords may be concerned about the impact that this legislation may have on their income stream, it is important to note that this is not a ‘rent holiday’ and the tenant will remain liable for the rent accrued during this period. If payment terms are not agreed or are not complied with, once the moratorium is lifted, landlords will be entitled to enforce the terms of the lease, including forfeiture for non-payment of rent.
It is worth noting that, currently, the moratorium applies only to rent payments, not service charges, insurance and any other landlord-charged costs.
It is important to seek legal advice when entering into a rent deferral agreement to ensure that you do not vary the lease terms permanently, and to ensure that the agreement is accurately recorded.
The government has highlighted that this suspension may result in cash flow problems for commercial landlords but advises that it is actively monitoring the impact on commercial landlords’ cash flow and continues to be in dialogue with them.
What does this mean for residential landlords and tenants?
With regards to residential properties, the emergency legislation will mean that, for the three-month period, landlords will not be able to commence possession proceedings to evict tenants. This is reassuring news for residential tenants who, ordinarily, would have faced eviction due to an inability to make rent payments. However, as with commercial leases, this is not to be viewed as a rent-free period, and the payments will need to be made up at the end of the moratorium.
Residential landlords may be concerned about how they will make their buy-to-let mortgage payments in light of this new legislation. However, the government has confirmed that the three-month mortgage payment deferral will be extended to landlords whose tenants are experiencing financial difficulties due to coronavirus.
Guidance is to be issued, encouraging landlords to show compassion and allow, so far as is possible, tenants who are affected by this crisis to remain in their homes.
Once this three-month moratorium comes to an end, landlords and tenants will be expected to engage in discussions to agree an affordable payment plan for the missed rent. In the circumstances, we recommend that landlords and tenants enter into a rent deferral agreement sooner rather than later, in order to ensure that the terms of any agreement between the parties are accurately recorded and the terms of the tenancy are not permanently varied.
This new legislation will provide piece of mind to many small business owners and residential tenants struggling to keep up with rent payments. Landlords and tenants, both commercial and residential, will need to enter into sensible discussions at the first opportunity in order to agree payment terms going forward, in order to avoid forfeiture or eviction when the moratorium is eventually lifted.
If you are a landlord or tenant and require advice on what this legislation means for you, or for assistance in preparing a rent deferral agreement, please do not hesitate to contact the Harrison Drury property litigation team on 01772 258321.