COVID-19: Landlord Options for Non-Payment of Commercial Leases

May 4, 2020

 

The Coronavirus Act 2020 was introduced in March 2020 in response to the global virus outbreak. Included in the legislation is the protection of commercial tenants against landlords forfeiting a lease.

What is the effect of the Coronavirus Act 2020 on a landlord’s right to forfeit a lease? 

The right to forfeiture is historically the most powerful tool in any Landlord’s armoury. However, under the Coronavirus Act, a landlord is not entitled to exercise the right of re-entry and forfeiture for non-payment of rent from 26 March until 30 June 2020 (with potential for an extension).

It should be noted that “rent” includes any sum that a tenant is liable to pay under the lease such as service charges, insurance rent and utilities etc.

Does rent remain payable by tenants?

Yes, rent still remains payable during the relevant period and interest will still accrue on any late payments.

Once the postponement period ends, if a right of entry has arisen during that time then the landlord will be able to take steps to forfeit the lease.

What to do if a tenant fails to pay rent?

Ultimately, landlords will need to assess each situation in the current climate and consider whether they can work to help their tenant through this period or enforce their rights as is appropriate. It is important that landlords and tenants are properly advised during this period and that any agreement is documented.

What other options are available to landlords where a tenant fails to pay rent?  

Recent legislative updates have meant that landlords’ options when faced with non-payment of rent varies:

  • Statutory demands sent to commercial tenants will be temporarily void until 30 June 2020.

  • The presentation of a winding up petition is not banned but any petition that claims that a commercial tenant is unable to pay its debts must be reviewed by the Court to determine if the breach is as a result of COVID-19.

  • Commercial rent arrears recovery (CRAR) remains available, however, it should be noted that the Government have provided tenants with more breathing space as this method cannot be utilised unless the tenant owes 90 days of rent.

  • Issuing a Court claim at the County Court remains largely unaffected, however, most Courts are severely behind schedule and have a backlog of cases.

Landlords will also want to review any guarantee agreements, assignment agreements and rent deposits to understand all their options.

 

 

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