While the government’s furlough scheme is set to be entirely phased out by September of this year, protection from forfeiture for non-payment of rent in English business tenancies has been granted a further extension and will now end on the 25th of March 2022- 9 months later than was initially expected.
This measure was originally introduced as part of the Coronavirus Act 2020, with the express aim of providing relief to struggling businesses looking to manage their cashflow and was due to end on the 30th of July 2021.
What does this mean for tenants and landlords?
Most significantly, the extension of this government measure will see commercial tenants continue to enjoy protection from eviction on the grounds of non-payment of rent until the end of March 2022. Under this statute, ‘rent’ is defined broadly to encompass any amount payable under the lease and hence applies to all payments expected on the part of the tenant, including insurance payments, utilities and service charges. While there had been some suggestion that the moratorium would only apply in circumstances where the tenant could not pay as a result of the coronavirus directly, this is not the case; the moratorium will apply across the board.
Moreover, the moratorium has restricted the use of a statutory procedure labelled ‘Commercial Rent Arrears Recovery’ (CRAR) which allows landlords to recover rent arrears by taking control of their goods and selling them. Under the new rules in order for landlords to use this procedure the rent arrears must amount to:
189 days’ rent on or after 24 June 2020 (but before 29 September 2020);
276 days’ rent on or after 29 September 2020 (but before 25 December 2020);
366 days’ rent on or after 25 December 2020 (but before 25 March 2021);
457 days’ rent on or after 25 March 2021 (but before 24 June 2021); or
554 days’ rent on or after 24 June 2021.
Notably however, the moratorium does not prevent landlords from forfeiting commercial leases for breaches of other covenants and arguably will not extend to the requirement to pay unliquidated amounts such as damages for dilapidations. Equally, the moratorium on evictions will not prevent rent from accruing and therefore when legislation lapses landlords will be entitled to claim for forfeiture for both payments that became due during the moratorium period, and for any becoming due but unpaid after it ends.
Which types of tenancy does the extension exclude?
Section 82 of the Coronavirus Act 2020 is expressed to apply to a ‘relevant business tenancy’ which is defined as any tenancy to which ‘Part 2 of the Landlord and Tenant Act 1954 applies’. This therefore excludes following:
Tenancies at will
Mining leases, a tenancy of agricultural holding and a home business tenancy.
Licenses including serviced office accommodation
‘Short leases’- a lease agreed for a period under six months.
Can commercial landlords still seek to recover debt from tenants?
The short answer is yes. The moratorium does not prevent landlords from seeking legal action to recover arrears from tenants who have refused to pay rent, it simply places a moratorium on evictions. Indeed, in December 2020 the High Court ruled in Bank of New York Mellon Ltd v Cine-UK ltd and others that tenants should pay their arrears, rejecting the defence’s suggestion that the UK lockdown should be classified as a frustrating event such that the lease should be terminated.
However, recovering debts via the County Court or High Court can be a long and expensive process and is therefore not a viable option for many commercial landlords seeking to recover arrears from tenants.
We will continue to closely monitor any developments pertaining the Coronavirus Act 2020 and the moratorium on commercial forfeiture specifically. If you are a landlord or tenant contemplating your next steps do not hesitate to contact our team at Farleys for professional advice. Call us today on 0845 287 0939 or contact us by email.
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