The Covid-19 moratorium for commercial landlords and tenants
Posted on 7 April 2020 by Sasha Loveridge
Most commercial leases contain a right to forfeit on specified events, including non-payment of rent. The Coronavirus Act 2020 (“the Act”) has introduced a three month moratorium on the ability of landlords of commercial leases to exercise rights of forfeiture in relation to non-payment of rent in order to protect commercial tenants during this difficult time.
The moratorium applies to any lease which falls under the definition of a business lease within Part II of the Landlord & Tenant Act 1954 (“the 1954 Act”) whether the parties have contracted out of the protection of the 1954 Act or not. However, in some circumstances the tenant can agree to its landlord forfeiting the lease (e.g. insolvency).
Non-payment of rent includes all sums due under the lease and so depending on the lease, can include service charges, insurance rent and interest. The moratorium is a general prohibition and applies whether or not the tenant’s failure to pay rent relates to Covid-19 or not.
However, it should be noted that the tenant is still liable to pay its rent under the lease. The unpaid sums are not written off, the moratorium simply allows the tenant to defer payment without risk of forfeiture action until after the three month period expires (30 June 2020).
If a tenant is in breach of other covenants within the lease, the landlord can take the usual steps to give notice and forfeit the lease.
Furthermore, the Act does not prevent any other recovery methods for unpaid sums ie serving statutory demands, utilising rent deposits, Commercial Rent Arrears Recovery or bringing debt claims. However, landlords are encouraged to come up with an amicable agreement with their tenant if their tenant faces financial difficulties in this unprecedented time.
Nothing the landlord does (other than an express waiver in writing) during the moratorium will amount to a waiver of the right to forfeit for non-payment of rent.
Assuming on 30 June, the Covid-19 restrictions are lifted, the status quo will be resumed and the moratorium will be over. Landlords will expect their tenants to pay the sums owed (including interest) and will be free to forfeit the lease if payment is not made.
In relation to proceedings already in place, the Court will not be able to order the tenant to give up possession before 30 June 2020 and as such, many possession hearings are being adjourned.
The length of the moratorium may be extended by the Government but it is an invaluable measure for many tenants who have been hit hard by the Covid-19 pandemic and the restrictions imposed to try and stall the spread as it allows businesses more time to come up with the rent in the hope that businesses can protect jobs and stay afloat in the meantime.
Posted in: Lettings/Landlord & Tenant