coronavirus act 2020 and rent arrearrs

An emergency legislation known as ‘The Coronavirus Act 2020’ (The Act) came into force on 25th March 2020, providing immediate protection for commercial tenants. The Act prevents Landlords from forfeiting ‘relevant business tenancies’. This provision will be available until 30 June, and possibly longer.

The important section that is applicable for commercial tenants and protecting them from eviction is contained in Section 82 of the Act. The section also covers situations where forfeiture proceedings have already commenced. However, in this article the focus will be on those where there have been no proceedings. Section 82 of the Act postpones a landlord’s ability to exercise the right to bring proceedings against a tenant to forfeit their lease for rent arrears. If an order for possession has already been made, the landlord will be prevented from enforcing the order for non-payment of rent.

Who does this benefit?

This section provides an important protection for all commercial tenants. This section is applicable to any lease that falls under the definition of a business lease, which is contained in Part 2 of the andlord and Tenant Act 1954: a tenancy where the property ‘is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes’.

The headline provision, contained in section 82(1), reads simply as follows:

‘A right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent, may not be enforced, by action or otherwise, during the relevant period.’

This means that any commercial tenant can benefit from this new legislation, despite having sufficient financial resources to meet the relevant rent payments.

However, the following are not afforded the protection provided by the new Act:

A licence to occupy (unless it is a lease, despite being described as a licence, but that’s a story for another day)
A tenancy at will
Tenancies that are expressly excluded from Part 2 of the 1954 Act, such as farm business tenancies and tenancies not exceeding six months

Rent under the Act

Section 82(12) defines ‘rent’ quite broadly: this includes not just the rent but also any service and maintenance charge, insurance fees and any other expenses that would usually be payable.

Only Forfeiture

Tenants must be aware that the Act only protects you from forfeiture and does not create a rent-free period. The tenant still must pay the rent sums, but the provision only delays the landlord’s right for forfeiture to recover the unpaid rent. This means the tenant will need to pay the owed rent, once the restrictions are lifted. A failure to pay rent will fall on the guarantor to make payments. The main thing to remember is non-payment of rent is not an option.

Alternatives

The Landlord in this instance can still use other methods to recover the unpaid sums. These include the following:

Take payment from a rent deposit
Add interest to the debt in accordance with the interest provisions in the lease
Sue the tenant and/or any guarantor for the debt
Exercise Commercial Rent Arrears Recovery
Serve a statutory demand and institute the relevant insolvency process

However, the aim of this legislation is to provide constructive negotiations between landlords and tenants to find a solution that makes commercial sense for both parties. The current climate is difficult for both the landlord and tenant, but it is best to compromise and negotiate a suitable solution.

For any questions please contact Kausiha Baskaran, a solicitor in the property department at Laurus on kausiha.baskaran@lauruslaw.co.uk or by telephoning 020 3011 4749