Commercial Lease Forfeiture – Landlord and Tenant Guidance on Section 82 of the Coronavirus Act 2020

On 25 March 2020 the Coronavirus Act (the Act) received royal assent and became active legislation. The Government introduced urgent measures to protect commercial tenants from eviction, which was discussed in our earlier blog. Below are further details specific to Section 82 of the Act, including guidance from the Ministry of Housing, Communities and Local Government (MHCLG).

Section 82 of the Act puts a suspension on landlords forfeiting ‘relevant business tenancies’ for non-payment between 24 March 2020 and 30 June 2020, or longer, if deemed necessary by the government.

However, as an alternative to forfeiture, pursuing commercial rent arrears recovery (CRAR), issuing debt claims or service of statutory demands are enforcement options that still remain available to landlords.

Alternatively, property-owners may wish to steer clear of the courts and are entitled to redeem payment from rent deposits or accumulate interest in accordance with the lease. Nevertheless, both landlords and tenants alike will be aware of the practical difficulties of re-letting premises in current market conditions.

The Act does not impose a means test in categorising who can benefit from Section 82. Consequently, tenants with sufficient cash reserves to weather the next few months of Coronavirus uncertainty, are entitled to benefit from this legislation too.

Some key points for both landlords and tenants to be aware of from Section 82 are:

• The forfeiture moratorium only relates to non-payment of rent. Landlords will still be entitled to pursue enforcement action for any other breaches of covenants of the lease;
• ‘Rent’ will include all payments due by the tenant under the lease, including VAT, service charge, insurance, professional fees and/or other payments such as repair costs;
• The preclusion on forfeiture is the only form of protection afforded to the tenant. A rent-free period is not created. Rent will remain due to the landlord and must be paid for that period at some point in the future so that enforcement action is effectively deferred in case of non-payment at a future date;
• Leases that have been ‘contracted out’ in accordance with the security of tenure provisions of the 1954 Act are also covered by the suspension;
• Ongoing forfeiture proceedings already in the Courts will also be caught by these provisions.

The MHCLG has recently offered guidance in relation to unsurprising questions that have arisen with this new legislation, click here for the full article. There has been debate as to whether all commercial leases are protected by the moratorium in section 82, including sub-tenants or licensees when in occupation of premises for the purposes of their business.

Interestingly, the direction given by the MHCLG is that the law acts to cover all commercial leases with tenants in occupation of premises for the purposes of their business. In addition, whilst originally thought by industry professionals that the forfeiture suspension does not apply for tenancies for a term of 6 months or less, the MHCLG has emphasised that the policy objective is to cover all commercial leases.

If you are affected by the above and would like to discuss your options or would like legal advice tailored for the ongoing public health situation, please contact Shams Rahman or another member of the Edwin Coe Property Litigation team.

We are continuing to publish regular online updates on all the legal implications relating to Coronavirus.

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