Few of us would have imagined even a few weeks ago that I would be writing an article with the title above. We live in strange times. The purpose of this article is to give some advice to commercial landlords and tenants about what the Coronavirus Act 2020 says and how it will affect them for the foreseeable future.
How does it work?
During the relevant period (currently the date of coming into force of the Act up to 30 June 2020 but could be extended), landlords can’t exercise their right to forfeit a lease either by court action or by taking peaceable possession.
If landlords by their conduct appear to have waived their right to forfeiture, this will have no effect unless specifically set out in writing.
Any existing orders already made can’t be enforced during the relevant period. Any failure to pay rent (or other sums) during the relevant period can’t be used as evidence of persistent failure to pay under LL&T Act 1954 Section 30 (1) (b).
How does this affect tenants wanting to ask for rent holidays?
On the face of it, you could be forgiven for thinking it is ok to relax and not enter into dialogue with your landlord. Actually, my advice continues to be to start the conversation.
When we emerge from this lockdown, the world is likely to look very different and even with the suggestion of help from Government for businesses, many companies will be struggling. The speed at which the moratorium was enacted is breathtaking. It may be removed at the same speed, at which point, all usual remedies will then become available to landlords again. To avoid being in a difficult position, attempt to agree something now with your landlord and keep it under review.
When the restrictions are lifted, what can landlords claim?
Basically, any rent or other payments due under the lease, if not paid, will be claimable by the landlord as part of an arrears claim either with, or without, forfeiture. Interest is usually also payable depending on the way the lease has been drafted.
I have an agreement not to pay, what does it mean?
In essence, there are three possibilities:
- The first is a rent payment holiday. This would usually be on the basis that the parties agree the rent does not need to be paid right away but it will be paid eventually when the tenant can afford it. This can also be called a rent suspension, but please note that it differs from rent suspension under the insured risks provisions of the lease as loss of rent insurance does not usually contemplate Lockdown due to Coronavirus. This would usually be agreed by way of exchange of correspondence and would not permanently change the lease terms
- The second is a rent concession or agreed rent free period. This would be where the parties have agreed that the tenant can stop paying all or part of the rent and that it would not be demanded in the future. Again, this can be documented by exchange of correspondence.
- The third, more permanent solution, would be an agreed re-gearing of the lease terms. For this to happen, the parties would need to have agreed to vary the terms of the lease. In this situation, it will be necessary for there to be a deed of variation setting out the agreed changes.
For the most part, your changes will be in either of the first two categories. However, if this situation carries on for a significant period, it may be that we will see many more variations to leases being agreed as landlords and tenants work together to seek an assured future together.
What does an agreement in writing look like?
Writing usually can include anything written, including emails. However, do be careful.
Some leases, even today, set out that writing does not include email or fax. As we adapt to life working remotely, and in a more paperless wa,y my guess is that even lawyers will have to accept that the pen may be mightier than the sword but that email is mightier still!
If you have any other questions or would like to speak to a member of our Commercial Property team, call us now on 01962 844333 or email contact@duttongregory.co.uk.
