Coronavirus Act 2020
27 / 03 / 2020
Real estate update – The new landlord moratorium on forfeiture and re-entry. How does it work?
On 25 March 2020 government put in place emergency legislation, known as the Coronavirus Act 2020. The Act prevents landlords of commercial premises from re-entering premises or forfeiting tenancies for non-payment of rent. The restrictions will initially last until 30 June 2020 but there is flexibility for government to extend the timeframe.
The moratorium applies to nearly all commercial tenancies (such as office, retail and industrial premises) and is not limited to premises which have been closed as they are “non-essential” businesses.
The measures only apply to forfeiture and re-entry for non-payment of rent but there is no requirement for the non-payment of rent to be linked to Coronavirus reasons. Landlords will retain the right to re-enter and forfeit tenancies for other reasons, such as damage to premises.
Landlords – points to note
- At the end of the moratorium period landlords will be able to bring possession proceedings and seek to exercise their right to re-enter premises in the usual way in respect of arrears of rent and other sums which are due.
- The legislation will stop landlords involved in existing court proceedings for possession of premises (which are unrelated to Coronavirus arrears) from forfeiting or re-entering the premises during the moratorium period.
- One major concern for landlords is that the measures apply to the payment of “rent” which is defined to include any sum a tenant is liable to pay under a relevant tenancy. The consequence is that a tenant could have protection to withhold other sums due under its lease for the moratorium period, such as insurance premium payments or service charge sums, but the landlord will remain liable to insure the premises and provide services which it will need to self-fund.
- The Act does not prohibit landlords from taking other steps to pursue rent arrears to recover unpaid rents, such as serving a statutory demand on a tenant. However use of statutory demands as a means of debt collecting could well be said to be an abuse of process as it is seeking to circumvent the forfeiture moratorium.
- Given the current situation, the reality is that the options available to landlords who do not wish to take steps which will cause long term damage to their reputation and relationships with tenants are limited.
- Landlords should be careful when entering in to any correspondence with tenants not to inadvertently waive a tenant’s obligation to pay rent during the moratorium period if this is not the landlord’s intention.
Tenants – points to note
- Tenants should be aware that the provisions are not a rent holiday and the rent is still due. The Act does not waive a tenant’s obligation to pay rent during the moratorium period. It only has the effect of delaying a landlord’s right to forfeit the lease or re-enter premises until the end of the moratorium period. The June quarter day is within the moratorium period when a further quarter’s rent will fall due from many tenants.
- One positive for tenants is that the Act states that landlords will not be able to use non-payment of rent for the period from 26 March 2020 to the end of the moratorium period as a reason not to grant tenants renewal leases under the Landlord and Tenant Act 1954.
- The Act does not prevent tenants from speaking to their landlords and agreeing variations to existing lease terms, for example a change from quarterly to monthly rent payments or negotiating a reduced annual rent for a period of time. Tenants should be having these conversations with their landlords if they need to.
Unfortunately the reality for struggling tenants is that these measures offer temporary assistance with cashflow, but little by way of long term help. For landlords, it is likely to be undesirable to forfeit tenancies from key tenants due to temporary market conditions. Market conditions may not have improved by the end of the moratorium period and so it might prove to be sensible for landlords and tenants to agree now, what will and won’t be paid. Hopefully both landlords and tenants will be back to business as usual soon.