On the 25 March 2020 the Coronavirus Act 2020 was passed into legislation and introduced various measures to protect numerous sectors, including property and retail, as a response to the coronavirus pandemic.
With the March “quarter day” coming just days after the lockdown was announced, it isn’t surprising that many commercial landlords and tenants are asking – what do I do?
When retail tenants have been forced to close their doors, it isn’t surprising that paying the quarter rent is likely to cause significant hardship. We have already seen a number of well know retailers such as Laura Ashley and Carcluccios consult administrators. Others, including Burger King and Primark, have publicly announced they intend to withhold the March quarter rent.
What does the Coronavirus Act 2020 say?
Section 82 of the Coronavirus Act 2020 is intended to protect commercial tenants, by precluding commercial landlords from forfeiting commercial leases and evicting the tenant for non-payment of rent. This measure is in place initially until 30 June 2020 but has been extended to 30 September 2020.
In brief it means that if a tenant has rent arrears during the relevant period, whether accrued before or during the period, the landlord automatically cannot forfeit the lease for no payment of rent. The landlord and tenant do not need to reach any agreement to waive payment of rent, it is automatic.
What does “rent” mean?
“Rent” is in fact not limited to rent. Rather, it “includes any sum a tenant is liable to pay under a relevant business tenancy”. So, it will also cover service charge arrears, building insurance, etc.
What premises are covered in the Coronavirus Act 2020?
The legislation appears to cover business leases whether excluded from the Act or not. Arguably the following arrangements may not be covered:
- Tenancies at Will (such as holding over after a previous excluded lease has expired),
- Licences, including serviced office arrangements
- Various leases excluded from the ’54 Act, such as a tenancy of an agricultural holding, a tenancy granted in consequence of employment, a tenancy not exceeding 6 months, telecoms leases
As the statute in new and has been put together so quickly, its breadth and interpretation is likely to become the subject of debate (and perhaps clarification by the government) over the coming months.
What the Act doesn’t say
The Act does not prevent other enforcement methods, e.g. insolvency, money claims, distress for rent etc. Whether or not landlords turn to these methods as an alternative is an open question. It will depend how strained their finances are as a result of tenants withholding the March quarter rent.
In respect of ongoing legal cases for non-payment of rent there are provisions that (a) prevent the High Court giving new orders which will result in the tenant giving up possession of the premises during the relevant period or (b) allow tenants to apply to vary a High Court possession order already made and delay the date of possession until after the relevant period.
Next Steps: The Act defers payment of rent, it does not cancel liability
These provisions only prevent a landlord enforcing by forfeiture until the 30 September 2020. After that date, or such further extended period, the landlord will be free to enforce by way of forfeiture for the arrears of rent. Landlord’s will also be feeling the strain and therefore they are unlikely to agree to extend any grace period further than the government requires.
It is therefore crucial to assess your position and options early on. These may include terminating leases or negotiating side agreements which are contractually binding.