Covid-19 and Business Tenancies: An Important Update

Who should read this?

  • Commercial Landlords, Commercial Tenants and Tenancy Enforcement Agencies; based in England and Wales.

The announcement

  • On Monday 23rd March 2020, Boris Johnson announced the UK’s lockdown on all but essential business, in an attempt to increase social distancing and mitigate the effects of Covid-19. Whilst this announcement did not come as a shock to many, it likely caused panic, and disturbance, in businesses and companies alike, across the UK.
  • Following this, on the 25th March, the UK Government passed the Coronavirus Act 2020, which subsequently received royal assent. The Act is the Government’s response to the ongoing Coronavirus pandemic and provides a means of short-term support for UK businesses.

How does the Act affect business tenancies?

  • Section 82 of the Coronavirus Act provides for the protection of business tenancies from forfeiture. During the relevant period, defined in the Act as from 26th March 2020 until the 30th June 2020 or otherwise specified, the right of re-entry or forfeiture for non-payment of rent may not be enforced, by action or otherwise.
  • The Act also protects the Landlord of the property. Section 82 (2) provides that no conduct or omission by the landlord, except by express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture.
  • Where a landlord commenced proceedings, prior to the outbreak of Coronavirus, to enforce a re-entry, or forfeiture, of a relevant business tenancy, section 82 (4) & (6) of the Act state that the tenant is under no duty to surrender the property until the end of the relevant period. This allows for safe and proper social distancing during the relevant period.
  • Moreover, during the relevant period, the Act provides that the county court may not make an order against a tenant to enforce re-entry, withstanding whether the application was made prior to, or during, the relevant period.

To whom does the Act apply?

  • 82 of the Coronavirus Act only applies to tenancies to which Part 2 of the Landlord and Tenant Act 1954 applies; or would apply if any relevant occupier were the tenant. We can advise on whether the Act applies to your lease.

What does this mean for commercial landlords?

  • In the event your tenant enters into rental arears during the relevant period, or entered into rental arrears prior to the relevant period, you will not be able to enforce your right to re-enter the Property and forfeit the lease.
  • The county court will not make an order to evict a tenant during the relevant period.
  • Applications made prior to the relevant period, which would otherwise expire during the relevant period, are to be treated as extended.
  • Failure to serve notice during the relevant period will not amount to waiving your right to re-enter the property, or forfeit the lease.

What next for commercial landlords?

  • Essentially, you will have to wait until the relevant period is over to forfeit the lease on grounds of none payment.
  • During the relevant period, you must allow the tenant to occupy the premises withstanding non payment of rent. You must not re-enter the property during this period.
  • Where possible, and at your own discretion, it may be beneficial to negotiate a reduced/deferred rental figure with your tenant for the duration of the relevant period. This may increase the likelihood of receiving rental income.
  • Whilst a landlord may still initiate debt recovery proceedings and serve winding up notices for unpaid rent during the relevant period. Landlords should be aware of the implications of forcing a solvent tenant into insolvency owed to short-term cash flow problems. This may result in less monies being recoverable in the long term.

What does this mean for commercial tenants?

  • It is a common provision of commercial leases whereby the landlord reserves the right to determine the lease, and re-enter the property, if the tenant fails to pay rent within 14/21 days of rent becoming payable.
  • During the relevant period, if you happen to fall behind on rent, your landlord will not be able to re-enter the property and forfeit the lease.
  • Failure to make payments during the relevant period will not account towards the grounds of ‘persistent delay in paying rent which has become due’ under s.30 (1) (b) of the Landlord and Tenant Act 1954.
  • The Act only provides protection for non-payment of rent during the relevant period. Breach of other covenants may still result in the landlord re-entering the property and forfeiting the lease.

What next for commercial tenants?

Whilst these provisions are welcomed given the current circumstances, there is yet to be mention of commercial rent freeze. That being said, there may be other ways to reduce, or freeze, your rent:

  • There may be a force majeure clause contained within your lease which provides for relating circumstances. If so, you may be able to freeze your rent, or even terminate the lease;
  • Attempt to negotiate a reduced rental figure, or freeze on rent, with your landlord, such as a rent deferment agreement; and
  • If you have it, consult your business interruption insurance broker. You may be covered for such an event.

Our position

Although MSB is now operating a skeleton procedure at our offices, all other staff are now working from home. We are committed to maintaining our level of client care in the face of adversity and are available via email and our direct dials as normal.

MSB practices in a wide range of areas including, but not limited to: employment; commercial litigation; residential and commercial property; and debt collecting. Should you have any queries in relation to the impact of Covid-19 on your business, please do not hesitate to contact us.

Contact us, we are here to help

If you have any questions please contact Daniel Sexton on the details provided below