Section 82 of the Coronavirus Act 2020 (“the Act”) deals with protection from forfeiture in relation to business tenancies in England and Wales.
Subsection (1) provides that any rights of forfeiture for non-payment of rent contained within business tenancies cannot be enforced “by action or otherwise” during the relevant period which is defined as 26 March 2020 to 30 June 2020, or such later date as may be specified by the Secretary of State. Subsection (2) confirms the landlord’s conduct during the relevant period will not amount to a waiver of the right to forfeit for non-payment of rent, save in the case of an express waiver in writing.
Section 82 deals with proceedings for forfeiture on the basis of non-payment of rent which have already been commenced in the High Court; the Court may make the order for possession, but the date by which the tenant is required to give up possession to the landlord cannot be before the end of the relevant period.
Where an order has already been made requiring possession to be given within the relevant period, unless it “complies with some requirement” (e.g. pays rent plus costs) and the tenant makes an application to vary the order, on deciding that application the Court, again, cannot make an order requiring possession before the end of the relevant period. The same applies to orders made by the Court under section 138 of the County Court Act 1984, i.e. where possession is contingent on a failure by the tenant of the outstanding sums being paid to the landlord or into court.
Section 82 also deals with section 30(1)(b) of the Landlord and Tenant Act 1954 (persistent delay in paying rent) and confirms that when considering this ground, any failure to pay rent during the relevant period is to be disregarded.
It is notable the Act defines ‘rent’, for the purposes of Section 82, as including “any sum a tenant is liable to pay under a relevant business tenancy”.
Whether or not the Act will have the desired effect depends on what the government’s intended effect actually is. Politically, it seems the government wishes to help tenants during a time when they are being forced to close shops, restaurants, pubs, leisure outlets, offices and other work places. However, what the Act does not do is prevent rent during the period becoming payable once the period ends, therefore it is perhaps only delaying the effects rather than making a substantial difference.
Further, during this time it will undoubtedly be incredibly difficult for landlords to re-let empty premises in any event, so it is questionable how many landlords would have forfeited leases during the period even if the Act had not been in force.
The Act will raise concerns for Landlords and Tenants alike. For landlords, the risks are relatively self-explanatory – they are likely not to receive any rental income for at least three months, as tenants will be protected from eviction. This will clearly have a detrimental effect on a landlord’s cash flow. This is likely to mean that those landlords on the brink of survival, due to the poor state of the high street and the insolvencies of tenants, may well be pushed over the edge. It is likely landlords won’t be able to meet their loan requirements and so it remains to be seen what the banks will do in this situation.
Further, given the Act applies to all sums due under the lease, this may cause landlords problems in relation to payment under contracts for services to which service charge applies and they may be unable to carry out their own obligations under the lease, which in turn could cause tenants (and, indeed, other third parties) to take action against landlords.
The relevance of the reference to section 30(1)(b) ought not to be underestimated; often this section will be used in conjunction with a compensation ground and therefore the inability of the Court to consider non-payment during the relevant period may impact on landlords’ requirement to pay statutory compensation to tenants.
For tenants, whilst on the surface the Act appears to protect them, and indeed will assist tenants in relation to cash flow, as already mentioned rent continues to accrue and be payable. The specific reference to non-waiver suggests, therefore, the landlord is able to take forfeiture action immediately following the relevant period, including on the basis of sums not paid during the relevant period. The risk to tenants is, therefore, that they will simply be subject to forfeiture action once the relevant period comes to an end.
In addition, landlords may seek to use other methods of debt recovery (for example, CRAR, action against guarantors etc) against tenants and in the event tenants are unable to make payments due to a drop in profits, they may be particularly vulnerable to these methods.
Property practitioners should pay particular attention to the subsections dealing with proceedings which have already been issued. Where practitioners act for tenants, they may be able to seek variations to orders already made in order to avoid tenants being required to give possession before the end of the relevant period. When acting for landlord, practitioners should be carefully advising as to when the relevant period ends and what action can be taken and at what time.
There may also be a knock-on effect for transactions; in a situation where there is already an order requiring possession on a date falling within the relevant period, and a sale/purchase is dependent on vacant possession, transactional practitioners should pay particular attention to whether that order will be varied by the tenant, thus affecting the transaction.
Practitioners will also need to take note of the wording relating to section 30(1)(b) when advising in relation to both new and ongoing lease renewal proceedings under the 1954 Act.
Insurance policies should be carefully scrutinised to see if they assist.
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If you have any questions relating to this update please contact Kate Andrews.