The current outbreak of the coronavirus has placed a lot of uncertainty on remedies available to tenants and landlords in respect of commercial business tenancies.
One area of commercial property litigation which has now been clarified during this intervening period is a landlord’s right to forfeit a commercial by virtue of the Coronavirus Act 2020 which was given royal assent on 25 March 2020.
Forfeiture is a term commonly known to commercial landlords and tenants and essentially is a landlord’s right to terminate a business lease in the event a tenant breaches its obligations under the terms of the lease and obtain possession of the commercial premises.
The Coronavirus Act 2020 has placed a number of restrictions on a landlord’s ability to issue proceedings to forfeit a lease and obtain possession.
Commercial landlords are unable to enforce (by action or otherwise) a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent during the relevant period. The relevant period is up to and including 30 June 2020, but this can be extended if the government requires it to be so. This means that currently, up to and including 30 June 2020, a commercial landlord is unable to seek an order for possession by way of forfeiture claim.
Further, no conduct by commercial landlords will be regarded as waiving the right of re-entry or forfeiture other than providing a tenant an express waiver in writing.
Note on peaceful re-entry
Most commercial leases have provisions to allow landlords to peacefully re-enter the commercial premises in the event a breach occurs and upon notice being given.
Many landlords may consider this option as an alternative to seek possession of commercial premises given the current restrictions. This provision is not an available route for landlords to obtain possession of commercial premises in view of the new legislation. Peaceful re-entry allows a tenant to make an application to the County Court or High Court to obtain an order to re-enter the Premises. This is known as relief from forfeiture. It may also now allow a tenant to sue a landlord for a breach of a statutory obligation and can have costs consequences for a landlord if a tenant succeeds in its application.
What can be done during this period?
The new legislation currently only relates to seeking forfeiture for non-payment of rent.
Any rent payable up to and including on 30 June 2020 which is not paid cannot be relied on to issue a notice in accordance with the Landlord & Tenant Act 1954 to terminate a lease for non-payment of rent during the relevant period.
A landlord must consider what is commercially viable during this present time.
A moratorium on payment of rent during this period or to agree with a tenant to pay rent will not only provide relief for tenants who are unable to trade at this time, but will ensure commercial landlords retain tenants upon the current lockdown being lifted and avoid difficulty to rent the commercial premises in the future in view of the rental market which will be drastically affected by this pandemic.
In terms of non-payment of rent, the landlord could also consider the following:
- A landlord can potentially utilise the rent deposit to cover the arrears (subject to the lease and the rent deposit agreement);
- A landlord can consider relying on guarantor agreements to obtain rent and could be an alternative option of obtaining rent;
- A landlord can consider serving a notice for rent arrears which were due prior to 25 March 2020, but there will be significant delays in issuing proceedings and obtaining a possession order;
- A landlord can serve notice in accordance with s.25 Landlord & Tenant Act 1985 for rent arrears which were due prior to 25 March 2020. Such notices require a minimum of six months’ notice period and therefore falls beyond the current relevant period. Nonetheless, a landlord is unable to rely on rental which were due between 25 March 2020 and 30 June 2020.
- A landlord & tenant can enter into discussions or negotiations to reach a mutual agreeable agreement in respect of the lease.
If the tenant has become insolvent or entered in receivership or administration, a landlord is unable to forfeit the lease without seeking an order from the court.
There are other options available such as: serving a statutory demand, issuing winding up proceedings or issuing debt proceedings, however, it is recommended that legal advice is taken before any of these steps are taken to ensure it is a viable option for your circumstances.
For breaches other than non-payment of rent a landlord could consider the following:
- A landlord can consider serving a notice on a tenant seeking the tenant to comply with its obligations under the terms of the lease;
- A landlord can serve notice in accordance with s.25 Landlord & Tenant Act 1985 for breach of repair covenant or for other reasons cited in s.30 Landlord & Tenant Act 1985. Such notices require a minimum of six months’ notice period;
- The landlord can enter the premises to carry out the repairs and seek the costs from the tenant at a later date. This is dependent on the provisions of the lease;
- An application can be made for an injunction to require a tenant to comply with the terms of the lease, however, there are currently delays within the civil court system.
Commercial landlord and tenants will ultimately require to enter into negotiations and discussions with one another during this period in an effort to reach an agreement.
The relevant period could be extended until after 30 June 2020 which will delay the process of obtaining possession by way of forfeiture. In the event the period is not extended landlords and tenants will have to consider how to approach their obligations under their lease and what action to take in the event these obligations cannot be met.
If you wish to seek further information or have any queries as to this article, please do not hesitate to contact us at Lewis Nedas Law.
Sherry Fard is a solicitor-advocate in the Commercial & Litigation Team at Lewis Nedas Law who specialises in commercial property litigation and can be contacted on 020 7387 2032.