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The Coronavirus Act and Commercial Property

You may or may not have seen the emergency legislation which deals with business tenancies set out in the Coronavirus Act 2020.

Enquiries are rolling in thick and fast from businesses who can see the potential lifeline that it could bring. Unfortunately, we are also seeing an increase in tenants hoping that this means they don’t have to pay their rent.

This article is a summary of what’s included in the Coronavirus Act 2020 concerning business tenancies and how it applies in the real world.

 

A Moratorium on Forfeiture

In circumstances where the Act applies, Landlord’s will not be able to take back possession of a commercial property by peaceable re-entry (changing the locks) or applying to the court for a forfeiture or possession order. The moratorium currently lasts until 30 June 2020 although the situation is under constant review.

If you’re a landlord, any attempt to forfeit during this period is likely to render such forfeiture ineffective and could result in a claim by your tenant for damages for the interruption of their business.

 

Who Does It Apply To?

It is likely to apply to all properties occupied by a business.

Technically, it applies to tenancies which are caught by the definitions set out in Part 2 of the Landlord and Tenant Act 1954 meaning that certain niche properties (e.g .mines) and short term tenancies (less than six months) may be excluded.

However, the Ministry of Housing, Communities and Local Government has recently confirmed in response to questions posed by the Property Litigation Association that the government’s policy objective was that it would apply to all commercial properties. Our view is that the Courts are likely to take that into account when interpreting the legislation.

 

What Sums Are Covered

The moratorium will apply if the tenant has been unable to pay “rent”. Bearing in mind how commercial tenancy agreements are usually drafted, it’s likely to include any sum payable by the tenant under the terms of the tenancy agreement. Payments such as insurance, service charge etc are likely to be caught as well.

 

Is This A Rent Holiday?

No, absolutely not. The legislation only prevents landlords (for a limited amount of time) from taking back possession of the property following a payment default.  Currently, other forms of enforcement such as CRAR (sending bailiffs in to recover goods), debt recovery claims and winding up proceedings are unaffected by this legislation.

You should also remember that the other provisions of the commercial property lease such as default interest and an obligation for the tenant to pay the landlord’s costs of recovering rent will also continue to apply.  Tenant’s should certainly not just stop paying rent without an agreement with the landlord.

 

What Should You Do?

Our suggestion would be to open an early dialogue. If rent payments need to be changed temporarily to allow the tenant’s business to survive, that should be agreed with the landlord and properly documented.

Simply stopping paying rent will increase the amount ultimately payable. It might even result in forfeiture one the moratorium is lifted.

Bearing in mind the rent will continue to be payable (unless agreed otherwise), if you’re a tenant, you should also consider if you can make some payment to the landlord to minimise the amount of arrears which will be building up.

 

Will this make a difference?

We believe it will.

It will prevent unscrupulous landlords from taking the opportunity to remove tenants they had perhaps wanted out anyway. Likewise, it gives tenants, who are in dire straits, some breathing space to consider their options.

 

Our Top Tips for Landlords and Tenants

  • Consider your positions very carefully
  • Talk to each other as soon as possible
  • Discuss your options and decide on a medium to long term strategy to get things back on track.

Simply deciding you are going to stop paying rent because you would prefer to keep the money in the business (without an agreement to that effect) will ultimately cost more in the long run.

 

For more advice on this or any potential commercial property dispute, please contact Daniel Harley on 0115 9 100 295 or click here to send an email.

Posted on April 8, 2020

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