Covid-19 and Possession of Commercial Premises for non-payment of rent

The Landlord and tenant team at OTS Solicitors are receiving enquiries from tenants of licensed commercial premises worried that their landlords are trying to evict them through forfeiture of their leases. With the news that pubs and licensed premises are likely to be the last to be given the go ahead to re-open by the government, in this blog we look at Covid-19 and possession of commercial premises.

Landlord and tenant Solicitors

If you need legal advice about your commercial lease or are worried about forfeiture or possession proceedings then the landlord and tenant team at OTS Solicitors can help you. Call us on 0203 959 9123 or complete our online enquiry form for a video conference, Skype or telephone appointment.

How does a landlord forfeit a commercial property?

To forfeit a tenancy the commercial lease must contain a clause which allows the landlord to forfeit the tenancy under certain circumstances, such as rent arrears. If there is a forfeiture clause, then the landlord may regain possession of the property by:

• Peaceable re-entry or

• Court order.

It is common for a commercial property agreement to contain forfeiture clauses to provide the landlord with a way to quickly regain possession of the property if a tenant is in breach of the tenancy agreement.

Covid-19 and possession of commercial properties

In March 2020, the government announced that commercial tenants who cannot pay their rent because of Covid-19 would be protected. The Coronavirus Act 2020 (The Act) provides that, if a commercial rental payment is missed, forfeiture action by a landlord is suspended for three months (until the 30 June 2020). The three month period may be extended by the government.

Section 82(1) of the 2020 Act provides that “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”. (Currently the relevant period is the three month period ending the 30 June 2020).

The court is still able to make an order for possession but section 82 of the Act states that the possession order cannot take effect before 30 June 2020, or if this period is extended, the expiry of the extended period. The Act also says that if an order was made in a court order granting possession between 26 March 2020 and 30 June 2020, possession may now only be gained after 30 June 2020, thus giving some protection to commercial tenants who are already the subject of forfeiture proceedings or worry that forfeiture proceedings may be commenced.

What is a relevant business tenancy?

A relevant business tenancy covered by the Act is a tenancy defined by the Landlord and Tenant Act 1954 and includes:

• A lease

• An under lease

• A periodic implied tenancy

• An agreement for lease

• An agreement for an under lease provided that the tenant is occupying the property for the purposes of their business.

• Leases which have been contracted out of the protection of the landlord and tenant Act 1954.

• A licensee of commercial premises and leases of less than six months are not referred to in the Coronavirus Act 2020.

When can a landlord start forfeiture proceedings?

Under the Coronavirus Act 2020 the earliest any forfeiture action for non-payment of rent can be started against a tenant of commercial property is the 1 July 2020.

Landlord and tenant solicitors emphasise that the 2020 Act only protects commercial tenants against forfeiture for non-payment of rent. It does not protect against forfeiture for breach of covenant. This is an important point as landlord and tenant solicitors are seeing a rise in enquiries, particularly from those in the licensed premises sector, about threatened forfeiture for breach of covenant. It is speculated that some landlords are anxious that tenants won't be able to pay their rent arrears and given that they can't start forfeiture proceedings for non-payment landlords are looking carefully at commercial lease terms to see if a tenant could potentially be in breach of a restrictive covenant.

What amounts to rent under the Coronavirus Act 2020?

Tenants need to understand the definition of rent under the 2020 Act to know if they are at risk of their landlord being able to commence forfeiture proceedings for non-payment.

Section 82(12) of the Act defines rent as “any sums a tenant is liable to pay under a relevant business tenancy”. This includes:

• Rent payable under the terms of the lease

• Any other payments liable to be paid under the lease, for example, insurance contributions or service charge or administration charges.

If a tenant breaches a covenant in their lease, such as a repairing obligation as they can't afford repairs, they are not protected from forfeiture proceedings under the 2020 Act.

Clearly the government expects landlord and tenants to communicate and discuss the impact of coronavirus on businesses and tenants but the law, as drafted in the Act, only protects tenants from forfeiture for non-payment of rent. Furthermore the legislation does not cancel the tenant’s liability to pay the rent and any additional monies owing under the terms of the lease.

Unless the government extends the 30 June 2020 deadline, with effect from the 1 July 2020, a landlord will be able to apply to forfeit a lease for non-payment of rent, any other sums due plus any interest payable for late payment under the terms of the lease. However, there is likely to be a delay in possession proceedings given court backlogs and the reality is that some landlords will recognise that it is best to try and work with tenants rather than leaving property empty with little prospect of being able to find another tenant to take on a public house or licenced premises.

Can a landlord accept partial rent payments?

The 2020 Act says that if a landlord accepts partial rent payments then they don’t waive their right to apply for forfeiture after the 30 June 2020 (or any extended period) unless the landlord waives their right in writing. Therefore partial payment of rent won't protect a commercial tenant from the prospects of forfeiture proceedings.

Online Landlord and tenant solicitors

If you are concerned about your landlord starting forfeiture proceedings against you for non-payment of rent or breach of covenant or have questions about landlord and tenant law then the landlord and tenant team at OTS Solicitors can help you find a solution. Call us on 0203 959 9123 or complete our online enquiry form. Appointments are available through video conferencing, Skype or telephone appointment.