Advice for commercial landlords on the forfeiture moratorium in the Coronavirus Act 2020 and other measures restricting enforcement action
The Coronavirus Act 2020 (“the Act”) became law on 25 March 2020. Section 82 of the Act contains a three month moratorium on landlords’ ability to forfeit leases of commercial property on the basis of non-payment of rent or any other sums due under the lease.
Some points to note:
- The moratorium started on 26 March 2020 and ends on 30 June 2020 (“the moratorium period) albeit that period may be extended by the Government.
- It applies both to forfeiture by way of peaceable re-entry (i.e. changing the locks) and court proceedings for forfeiture.
- It does not mean that the rent or other sums due are not payable – only that the landlord cannot forfeit for those arrears at the moment.
- The moratorium applies to the vast majority of commercial leases (irrespective of whether the tenants have been directly affected by COVID-19).
- It will also protect an intermediate landlord, where there is a commercial occupier.
- It contains some protection for landlords who may be in discussions with their tenants regarding their rent payments by expressly providing that those discussions will not (unless the contrary is specifically stated) amount to a waiver of the right to forfeit. Further, a landlord can continue to issue rent demands without the risk of waiver.
- Where forfeiture proceedings have already been started, the court cannot require the tenant to give up possession prior to the end of the moratorium period.
- Where an order for possession has already been made but the date for possession has not yet passed, it allows a tenant to apply to court to vary the date for possession to a date not earlier than the end of the moratorium period.
- Finally, it provides that a landlord cannot rely on any missed rent payments during the moratorium period when opposing the grant of a new lease on the ground of persistent delay in paying rent.
Stay of Possession Proceedings
In addition to the above legislation, a new practice direction was issued on 20 April under the Civil Procedure Rules (PD51Z). The effect of PD51Z was to immediately stay certain possession claims for a period of 90 days, including all claims for forfeiture of commercial premises (no matter what the breach). Accordingly, currently no forfeiture claim can be progressed through the court (even if it does not relate to non-payment of rent or other sums), leaving only peaceable re-entry (for breaches other than non-payment of rent or other sums) as a way to forfeit a commercial lease until at least the end of June. In fact, the Government issued a press release on 5 June confirming that the stay on evictions would be extended by two months to 23 August 2020 and it is anticipated that this will be achieved by an amendment to PD51Z.
While the Government has acknowledged that the majority of landlords and tenants are working well together to reach agreement on rent obligations (and certainly that is our experience), it has not stopped there:
- The new Corporate Insolvency and Governance Bill will prevent the issue of winding up petitions based on statutory demands made between 1 March and 30 June 2020 or, if later, one month after the Bill becomes law. Further, it will prevent winding up petitions presented from 27 April 2020 unless the creditor can show it has reasonable grounds to believe that coronavirus has not had a financial effect on the company, or the facts on which the grounds for the petition is based would still have arisen but for coronavirus. This is likely to be a difficult hurdle to overcome in many cases. The Bill is currently before the House of Lords and is likely to come into force towards the end of June 2020. Whilst it may be tempting for a landlord to try to get in there before the Bill becomes law, the court has made it clear that it can and will grant an injunction to prevent the presentation of a winding up petition notwithstanding that the Bill is not yet law, if the creditor would not be able to obtain a winding up order once the Bill was in force.
- The Government has also limited a landlord’s ability to exercise Commercial Rent Arrears Recovery (CRAR). The changes (set out in The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020) came into force on 25 April 2020. The main change, which applies to any notice of enforcement given between 25 April and 30 June 2020, is to increase the minimum amount of rent that must be in arrears before a landlord can use CRAR from 7 to 90 days’. This does mean that if, for example, a tenant has not paid any of the March quarter, CRAR should still be available as this is over 90 days’ rent.
A lifeline for landlords?
The combination of the current and planned measures clearly substantially restricts any action that a landlord can take when faced with a tenant who is refusing to pay rent, and it will be a huge concern for all landlords. Generally, it leaves landlords with no options other than court proceedings for a money judgment, drawing down from a rent deposit if there is one, or pursuing any guarantors.
The Government has called upon tenants to pay rent where they can afford it or to pay what they can in recognition of the strains felt by commercial landlords too. However, this is unlikely to provide any reassurance.
The Government said initially that it is actively monitoring the impact of coronavirus on commercial landlords’ cash flow and that it will continue to be in dialogue with landlords.
In a 23 April 2020 press release, the Communities Secretary said “we understand that landlords are facing their own very serious pressures and are concerned about their position with lenders. We are working with banks and investors to seek ways to address these issues and guide the whole sector through the pandemic.” Could this be a sign that some overdue help is on the way for landlords? None has materialised as yet.
On 17 April 2020, the BPF, BRC and Revo sent a joint letter to the Chancellor proposing the introduction of a scheme of rental support (The Furloughed Space Grant Scheme) where the Government would support the fixed costs of businesses (including rent) that have experienced dramatic falls in turnover due to the pandemic, similar to schemes introduced in Denmark and other European countries. However, there is no indication so far that the Government will adopt that sort of scheme.