Harrison Drury’s Hayley Bamber and Abbie Seed look at the Coronavirus Act 2020 in more detail, the importance of entering into a rent deferral agreement and why rent deferral arrangements should be documented.
Further to our recent blog: The Coronavirus Bill – what it means for landlords and tenants – the Coronavirus Bill has since received royal assent on March 25, 2020.
The Act postpones a landlord’s ability to exercise its right of forfeiture for non-payment of rent against a business tenant from March 26, 2020 until June 30, 2020, the ‘Relevant Period’, or a later date if extended.
Understandably, the Act raises a number of concerns for commercial landlords and tenants. Since the Act came into force, we have received numerous queries and thought it may be useful to mention a few of the key areas raised below:
Can I forfeit the lease for non-payment of service charge or other sums due under the lease?
Under the Act, the term ‘rent’ includes any sum a tenant is liable to pay under a business tenancy. This will include not only rent but also service charges, insurance charges and any other sums due under the lease.
As such, any attempt to forfeit the lease during the Relevant Period for non-payment of service charge, insurance or other sums due would be unlawful. If you were to forfeit in breach of the Act, the forfeiture would be ineffective and the lease would continue.
The Act does not postpone a landlord from forfeiting a lease on grounds other than non-payment of rent. However, the courts may not list hearings or may grant relief from forfeiture until after the Relevant Period.
Does the Act waive a landlord’s right to forfeit a lease on grounds of non-payment of rent?
The ban on forfeiture for non-payment of rent is simply a suspension of the process. The tenant is still obliged to make the rent payments during the Relevant Period unless a rent deferment is agreed. At the end of the Relevant Period, unless extended, landlords will be entitled to exercise their rights of forfeiture for non-payment of rent. In the circumstances, landlords and tenants should work together to reach and document agreements that work for both parties.
A rent deferral agreement allows a landlord and tenant to reach an agreement for the tenant to defer rent payments due under a business tenancy for a specified period. Agreements can vary in terms and be tailored to individual needs.
A rent deferral agreement makes provision for the rent payments to be delayed and sets out the terms as to when the deferred rent is to be paid, providing clarity and reassurance for both parties. Such an agreement may also be useful while tenants wait for government assistance and grants to commence.
While landlords may already be entering into discussions with tenants about rent deferrals, proper provision needs to be made, conferring obligations on the tenant to pay the rent at the end of the Relevant Period. The tenant needs to be made aware of the consequences of failing to make such payments.
As soon as the Relevant Period ends, in the absence of a rent deferral agreement, a landlord will be entitled to forfeit the lease for non-payment of rent. However, given the current climate, landlords should be cautious when exercising any right to forfeit, as prospects of quickly re-letting the property may be unlikely. It is therefore in both party’s interest to ensure that an agreement is reached.
A rent deferral agreement not only assists in accurately documenting any agreement reached between landlords and tenants, but it ensures that a landlord does not inadvertently vary the terms of the lease indefinitely.
Are there any other alternatives to forfeiture and sanctions for tenant breach during the Relevant Period?
In some circumstances, a rent deferral may not be appropriate. There are alternative options and remedies available to landlords other than forfeiture for tenant breach. For example, these may include charging interest on any unpaid rent or pursuing a debt claim.
Alternatively, drawing payment from a rent deposit or claiming debts from a guarantor, exercising Commercial Rent Arrears Recovery (CRAR) or serving a statutory demand.
Create a Rent Deferral Agreement
Our property team has developed a simple self-service tool to help landlords create cost effective Rent Deferral Agreements instantly. Click the below link to find out more:
If you are a landlord or tenant and require advice on your rights following the Act, or for assistance in preparing a rent deferral agreement, please do not hesitate to contact the Harrison Drury property litigation team on 01772 258321.