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Effect of the Coronavirus Act 2020 on commercial leases

Hewitts > All News > Effect of the Coronavirus Act 2020 on commercial leases

In this uncertain time, we at Hewitts are on hand to provide advice and guidance for businesses to navigate through this uncertain time. Ian Gibson, Partner and head of the Commercial Property team at Hewitts has set out below a brief overview of the effect of Section 82 of the Coronavirus Act 2020.

In short, Section 82 of the Coronavirus Act 2020 provides that commercial leases cannot be forfeited for non-payment of rent during the relevant period and that the court cannot order a possession to take place before the end of the relevant period.

What leases does this apply to?

Section 82 uses the definition given to a “business tenancy” that is set out in Part II of the Landlord and Tenant Act 1954. In simple terms this includes:

  • any tenancy/lease where the demised premises (or part thereof) are occupied by the tenant for business purposes (or mixed purposes including business use); and
  • Any tenancy/lease where the tenant has agreed to contract out of the Security of Tenure provisions contained within the Landlord and Tenant Act 1954

Please note that as it stands, Farm Business Tenancies do not fall within this definition and therefore Landlords can still take action to forfeit a Farm Business Tenancy and such tenants would not benefit from the protections under the Act.

What is meant by forfeiting the lease?

Forfeiture is a method by which the landlord can terminate the lease. This is instigated by proceedings brought by the landlord against the tenant. If the landlord is ultimately successful the can take back possession of the premises.

What is the “relevant period”?

At present the “relevant period” is from 26 March 2020 and ends on 30 June 2020. However, the period may be extended by regulations. This means that landlords cannot forfeit a lease during this period even if the rent arrears accrued from before 26 March. So for instance, where a rent payment was not made on 1 March then the landlord still cannot forfeit the lease for non-payment of rent until after the relevant period expires.

Is it just non-payment of annual rent? What about the service charge?

Under the Act, “rent” includes any sum a tenant is liable to pay under a relevant business tenancy. This therefore includes not only the annual rent payable but also any other payments that must be made under the lease, such as a service charge, or the tenant’s contribution towards the cost of insuring the building. Therefore if the tenant does not pay the service charge or their contribution towards the landlord insuring the building that the premises are within then the landlord may not forfeit the lease during the “relevant period”.

Can a landlord still forfeit the lease for any other breach?

Yes, a landlord can still seek to take back possession of the premises thereby terminating the lease for any other breach. In such a case, the process begins with a formal notice that must be served on the tenant by the landlord pursuant to Section 146 of the Law of Property Act 1925.

Such breaches would depend on the terms of the lease in question but could include an obligation on the tenant to stay open and trade during set hours of the day or other more usual matters such as the premises not being kept in the condition of repair and maintenance that is stipulated by the terms of the lease.

Does this mean the tenant doesn’t have to pay the rent?

No. the tenant is still contractually obliged to pay the annual rent and any other sums due under the lease. It is simply a case that the landlord cannot evict the tenant for non-payment of rent during the “relevant period”. As such, if the tenant does not pay all the annual rent and any other sums owing to the landlord during the “relevant period” then the landlord could instigate court proceedings against the tenant the very next day after the “relevant period” ends.

What about rent deposits and incentives?

Depending on the terms of the lease and other documents that the parties have entered into if the tenant does not pay the annual rent or other sums due then the landlord may be entitled to deduct monies owing from any rent deposit held and further, if there was an incentive offered to the tenant (for example a discounted rent) then such incentive may cease to apply due to the non-payment of the monies owed by the tenant to the landlord.

Does this apply to existing possession proceedings?

A landlord which has issued and served court proceedings for non-payment of rent (thereby forfeiting the lease) before 26 March 2020 is subjected to the same restrictions on its ability to recover possession earlier than the expiry of the relevant period (currently 30 June).

 

Should you require clear advice as to how the Coronavirus Act 2020 impacts upon commercial leases then please do not hesitate to contact Ian Gibson on 01388 604691 or by email iangibson@hewitts.co.uk

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