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Commercial Rents - Restrictions during the Coronavirus period

Follow the general announcement by the Government on the restrictions which will apply to landlords and tenants of commercial property, details have now been enacted in the Coronavirus Act 2020.

The provisions of that Act are remarkably simple.The relevant section (section 82) simply says that a landlord may not enforce a right of re-entry in a commercial lease for non-payment of rent.This means that a landlord cannot forfeit a lease (if the lease so allows) or enforce any Court Order for possession.

The period of this restriction is the period up to 30 June 2020 (although that date may be extended).

So what does this mean for a commercial lease?

Firstly, a tenant does not have to obtain the landlord's agreement.A tenant can stop paying rent safe in the knowledge that until 30 June 2020 the landlord cannot terminate the lease.In some respects, therefore, this could be regarded as something of a tenant's charter which simply allows a tenant to withhold rent without any discussion.

However, the restrictions only apply to restrict a landlord's ability to forfeit a lease or enforce an Order for Possession.Accordingly: –

  • A tenant is still liable to pay the rent during this period.
  • A tenant is still liable to pay interest on any outstanding rent.
  • A landlord may issue Court proceedings and obtain a Court judgment against a tenant.A landlord may still enforce that judgment using, for example, bailiffs or High Court Enforcement officers to enter premises and seize goods, or to obtain third-party debt orders against the tenant's bank account or other people who may owe the tenant money.
  • A landlord may still have recourse to rent deposit monies if those are held.
  • Any guarantor is still liable to pay the rent and the landlord may pursue those guarantees.
  • The restriction only applies in relation to rent arrears.If there are other breaches of tenant covenants in the lease, a landlord may serve Section 146 Notices and forfeit the lease for those other breaches.

These are obviously difficult times for tenants whose businesses may have been closed down or seriously affected as a result of the restrictions.It may also be difficult for a tenant to justify making payment of rent to a landlord where that could amount to a preference, and such preference payments could put a landlord in difficulties if the tenant subsequently goes into liquidation.

Landlords also need to be aware of the potential spectre of empty properties once this period of restriction comes to an end.

Our advice to both landlords and tenants would be to ensure the dialogue is maintained if a tenant decides that it would be appropriate to not pay rent.As I have said, these restrictions do not absolve the tenant from that obligation to pay.It is also important that if agreements are reached, these agreements are properly documented so that a landlord does not waive its entitlement to receive rent in full.

If you would like to discuss any issues arising out of these restrictions please contact me or my colleague Julie Fryer.

Simon Parrott

Commercial Property eBrief 30 March 2020