COVID-19: business tenants protected from eviction and other threats

This article was updated on 30 April 2020.

Section 82 of the Coronavirus Act 2020 prevents landlords from forfeiting ‘relevant business tenancies’ until 30 June, and possibly longer. Regulations have also been made restricting the use of Commercial Rent Arrears Recovery (CRAR) during the same period, and emergency legislation is promised preventing landlords from serving statutory demands and instituting insolvency proceedings. But tenants should think twice before withholding rent and other lease payments, and landlords do not necessarily have to take a passive role.

The government announced on 23 March (two days before the March quarter day) that the emergency Coronavirus Bill would include provisions to protect ‘commercial tenants who cannot pay their rent because of coronavirus’ from eviction. Two days later, the Coronavirus Act 2020 received royal assent and became law. That did not give many commercial tenants, whose rents were due on the March quarter day, very long to digest the new law and make a considered decision whether to pay the March quarter’s rent.

The measures protecting commercial tenants from eviction are self-contained within section 82 of the new Act. The section also includes extensive provisions dealing with situations where forfeiture proceedings have already commenced in the High Court or county court, but this article is only concerned with situations where no such proceedings already exist.

Who is protected?

While the announcement said the measures would benefit commercial tenants who cannot afford to pay their rent, there is no means test in section 82. 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.’

So any tenant, even one who has sufficient financial resources to weather the coronavirus storm (perhaps even more so than its landlord), is free to take advantage of the new law.

The definition of ‘relevant business tenancy’ is wide enough to include all business tenancies within Part 2 of the Landlord and Tenant Act 1954, even those that have been ‘contracted out’ of the security of tenure afforded by that Act. A slightly ambiguous second limb in the definition suggests that landlords who are themselves tenants under a headlease will also benefit from section 82, despite not being in occupation.

However, the following are not within the protection of section 82:

• A licence to occupy (unless it is in reality 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’

Rent is defined widely in section 82(12) to include ‘any sum a tenant is liable to pay under a relevant business tenancy’. This means that a landlord may not forfeit during the relevant period for non-payment of main rent, insurance contributions, service charges and any other payments due under the lease.

Crucially, the relevant period defines the period during which the landlord may not forfeit rather than the period in which the rent must have fallen due. Tenants are therefore not prejudiced by the fact that the relevant period began the day immediately after the March quarter day.

However, since section 82 is limited to forfeiture for non-payment of rent, it does not preclude the landlord from taking enforcement action based upon other breaches of the lease, to the extent that such action may practicably be taken during a period of lockdown.

Only forfeiture?

Tenants (and landlords) should take note that section 82 only protects the tenant from forfeiture. It does not create a rent-free period, nor does it remove the landlord’s other remedies (although on 23 April the government announced that it was also planning to restrict the use of CRAR and/or statutory demands in an attempt to afford greater protection to commercial tenants). So, the rent remains due and will need to be paid at some point.

While the government is clearly keen to encourage collaboration rather than litigation between landlords and tenants, even during the protected period, a hard-pressed landlord will be perfectly entitled to:

• 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 (although from 24 April 2020 until the end of the relevant period, CRAR may only be instituted where at least 90 days’ rent is outstanding)
• Serve a statutory demand and institute the relevant insolvency process (although the Corporate Insolvency and Governance Bill intends to remove this remedy)

There will be obvious practical difficulties for landlords in pursuing some of the above remedies during a period of lockdown.

Of course, many landlords will not want to forfeit anyway. Premises will be virtually impossible to re-let and the landlord will not want to assume liability for business rates. Landlords may wish to be more creative when faced with tenants withholding rent. In return for agreeing a formal rent reduction or holiday to help a temporarily-struggling tenant through the immediate crisis, is the tenant prepared to agree to, say, extend their term or remove a break clause?

Tenants who are considering taking advantage of section 82 should also be mindful if they are exercising a break clause that requires the rent to be paid up to date in order for the break to be effective.

Balancing act

Section 82 also makes provision to ensure that neither landlord nor tenant is prejudiced in the future.

Normally, a landlord must be careful once the right to forfeit has arisen not to ‘waive’ the right to forfeit by doing anything that recognises that the lease is continuing. Section 82(2) of the new Act provides that no conduct by the landlord during the relevant period (other than an express written waiver) is to be regarded as waiving the right to forfeit.

The landlord’s right to forfeit is therefore preserved, but as soon as the relevant period expires, landlords will need to make a quick decision whether to forfeit or risk waiving the right by continuing to act as if the lease is still in place.

Similarly, tenants might be worried that non-payment of rent now might be held against them on a subsequent lease renewal. Section 82(11) confirms that any failure to pay rent during the relevant period shall be ‘disregarded’ if the landlord seeks to oppose renewal on the grounds of ‘persistent delay in paying rent’.

Relevant period

The relevant period is 26 March 2020 (the day after the day on which the Act was passed) until 30 June 2020.

Section 82(12) does however anticipate that the relevant period may need to be extended, possibly multiple times, and provides that extensions can be made by statutory instrument rather than requiring further primary legislation.

If you are affected by the above and would like to discuss your options, please contact Kevin Lee (Head of Property Litigation) or another member of the property litigation or commercial property teams.

For further updates and other articles discussing the impact of the coronavirus please view our coronavirus hub.