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Restrictions on the right to forfeit commercial leases for non-payment of lease payments

The government has announced that a moratorium on commercial lease forfeiture in England and Wales for three months would be included in the Coronavirus Bill, with separate provisions applying in Northern Ireland.

Under this moratorium rights of re-entry or forfeiture for non-payment of rent or other lease payments cannot be enforced by landlords of business tenancies in the period up to 30 June 2020 (which can be extended depending on what happens over the coming months). It’s not just rents which are covered – examples of ‘other lease payments’ include service charge and insurance premiums.

Whilst this moratorium will provide an ultimate safety net for business occupiers against eviction during the current COVID-19 outbreak the provisions are limited in effect.

Firstly, it’s important to note that what has been announced is not a rental deferment or rental holiday. Rent and other lease payments are still payable on the due date with interest accruing due to late payment (where provided for in the lease).

Secondly, there are no restrictions in the Coronavirus Bill on landlords using other remedies available to them for non-payment such as proceedings to recover rent under CRAR or enforcing orders for the payment of rent and other payments (although this may be more time consuming).

Finally, once the period ends the landlord regains the right of re-entry or forfeiture for non-payment during the moratorium unless they’ve expressly waived their rights to do so – meaning that if the tenant isn’t able to pay the outstanding rent immediately the landlord could forfeit the lease.

Tenants will therefore need to carefully consider whether it’s prudent for them to rely on the moratorium alone and unilaterally not pay their rents on the due date. As well as the landlord’s other legal remedies, there may be strong commercial drivers for tenants to pay in accordance with the lease to preserve break rights which are often conditional on rent having been paid ‘up to date’ on the break date.

As a result, whilst the moratorium provides a limited ultimate safety net for occupiers and is something which landlords need to bear in mind in their interactions with their tenants, in reality dialogue in relation to rental payments with a view to achieving mutually acceptable short or longer term agreement is likely to remain a high priority for both landlords and tenants over the coming days and weeks.

As an aside, the announcement also included provisions of note in relation to possession proceedings which are already in progress. Once the Coronavirus Bill becomes law, the court cannot order possession to be given before the end of the moratorium period. Tenants can also apply to vary ‘conditional’ possession orders which have already been granted to ensure that possession doesn’t have to be given during the moratorium period. Both these provisions apply whether or not possession has been ordered for the non-payment of rent or other lease payments – so need to be considered carefully by landlords seeking to enforce their rights.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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