Government moratorium on commercial evictions – what it means for landlords and tenants
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On 5 June 2020, the UK government announced that the current moratorium on evictions from social or private rented accommodation in England and Wales would be extended by a further two months until 23 August 2020.
The moratorium on forfeiture of commercial leases, which currently applies until 30 June 2020, is likely to be similarly extended, but in the meantime commercial landlords and tenants await further announcements on this matter.
For more information, please contact commercial real estate specialists Antony Phillips, Owen Talfan Davies or Faye Hyland.
On 23 March, the UK government ordered a three-month moratorium on the ability of landlords of commercial leases to exercise rights of forfeiture in relation to non-payment of rent.
These measures were introduced ahead of the government requiring almost all categories of shops to close and the public to remain in their homes unless shopping for essentials.
The new legislation will form part of the Coronavirus Bill and will apply to commercial tenants in England, Wales and Northern Ireland.
The measures will come into force when the Coronavirus Bill receives Royal Assent and will continue until 30 June 2020. However, the government will have the option to extend this timeframe if necessary, and may well do so if the COVID-19 crisis looks set to continue past the next quarter day (24 June 2020).
Forfeiture
While forfeiture is one of the most powerful remedies available to a landlord where its tenant does not pay the rent, it is not the only option.
Other remedies remain unaffected (for the time being, at least) by the new legislation.
Such remedies include:
Statutory demand/winding up petition
In the case of unpaid rent (as opposed to service charge in most circumstances), a landlord may serve either a statutory demand or petition for the winding up of the tenant company.
In reality, given that the courts are now adjusting to reduced staff and moving to video hearings, it is unlikely that a petition will be heard for several months.
However, issuing a petition and advertising it may impact a tenant's banking covenants. So it is a threat that should be taken seriously.
CRAR
At present, a landlord of commercial premises may, if the rent is overdue by at least seven days, instruct a certificated bailiff to attend at the premises that are the subject of the lease and leave a seven-day notice requiring payment of the rent.
If the rent is not paid in that time, the bailiff has the power to remove goods from the premises and sell them to cover the amount of rent owed.
With many premises closed and restrictions on working practices as a consequence of the COVID-19 crisis, this is unlikely to be a realistic option in most cases, and is also likely to be unlawful while the UK is in lockdown.
Court proceedings
The option of commencing court proceedings for recovery of rent and service charges remains.
However, as with commencing winding up proceedings, the process is likely to be very slow given the adjustments that the courts are currently making.
Rent deposit
If the landlord holds a rent deposit, and subject to the terms on which it is held, a landlord can retain deposit monies to cover rent (and often service charge) arrears.
However, as is the case in 'normal' times, the landlord needs to look to the tenant to replace such sums, which may be a challenge under the present circumstances.
However, in the short term, this may be an attractive remedy for landlords who hold rent deposits.
Guarantors
Pursuing guarantors of commercial leases for rent arrears is still possible under current legislation, subject to the fact that it may be difficult to commence the proceedings necessary to claim these funds.
As things stand the normal contractual and statutory provisions apply to guarantors.
Section 81 of the Tribunals, Courts and Enforcement Act 2007
Under s.81 of the Tribunals, Courts and Enforcement Act 2007, a landlord can serve notice on a sub-tenant, requiring them to pay rent directly to the superior landlord.
However, if the subtenant has already paid its rent (to the sublandlord), it is not required to pay twice.
Force majeure
The vast majority of leases do not have force majeure clauses and it is difficult to think of a situation where such a clause would be implied into a lease.
Most leases have rent suspension provisions, but these tend to relate to insured risks which generally won't apply under the current (coronavirus) circumstances.
Derogation from grant
Derogation from grant probably does not apply in most circumstances related to coronavirus, as the commercial premises still there and the interference to the purpose for which the lease was granted is temporary.
However, this will depend on the facts and the terms of the particular lease.
Frustration
It is very difficult to show a lease has been frustrated – i.e., to prove that the subject matter of contract is no longer applicable to the circumstances.
The coronavirus lockdown in a temporary interference, and the commercial premises will still exist.
Frustration might however be applicable when the lease expires before the moratorium ends. In these circumstances, commercial tenants should try to negotiate with their landlords.
Engagement/negotiation
In many cases, landlords and tenants have been talking to each other over the last week or so about the current crisis and how they might work together to get through it.
No doubt those discussions will be ongoing in coming weeks and months as the property world tries to get to grips with one of the biggest impacts on the industry in recent times.
For expert advice on these and other property-related issues, please make contact with our team of specialist contentious real estate experts.
For more information please visit Fieldfisher's COVID-19 content hub, we are updating this daily with up-to-date information.