Moratorium on Forfeiture of Business Tenancies and Measures to Protect Tenants against Rent Collection
Last updated: 14 October 2021
The Coronavirus Bill made its way through to Parliament, and received Royal Assent on 25 March 2020. Although the vast majority of the Bill relates to the availability of the health and social care workforce and efforts to slow the spread of the virus, there are some provisions in it restricting the ability of a landlord of commercial property to forfeit a lease for non-payment of rent or to oppose the grant of a new business tenancy on the basis of a persistent failure to pay the rent.
The key points to be aware of are:
- The emergency Coronavirus Bill, later enacted by Section 82 of the Coronavirus Act 2020, imposed a moratorium on forfeiture, which on 16 June 2021 was extended until 25 March 2022. This means that a landlord may not forfeit a commercial lease for non-payment of rent until the end of March 2022. “Rent” is defined as including any sum a tenant is liable to pay under a commercial tenancy. This means that, in theory, the restriction applies to non-payment of rent, service charges, insurance rent and any other sums due under the lease. A landlord’s right to forfeit for non-payment of rent is specifically preserved and cannot be waived unless such waiver is given expressly in writing.
- A landlord cannot waive the right to forfeit unless it expressly chooses to do so. This means that once the moratorium has expired, the landlord may be able to take action to forfeit in respect of a failure to pay the rent due on the June 2021 quarter day.
- Neither the County nor the High Court can grant an order forfeiting a lease which gives a landlord possession prior to March 2022.
- The government also intends to introduce legislation to help both landlords and tenants to come to an agreement regarding vast rental arrears through a new “binding” arbitration process. It has not yet clarified how this process is to work. There is an opening suggestion that tenants will be encouraged to prioritise payment of new/future sums of rent whilst having an extended form of protection against landlord action to recover any pandemic arrears which will be “ringfenced”.
- The restrictions on using CRAR are also to be extended from the current position, which stipulates that the landlord can only use CRAR if the tenant is in arrears of more than 457 days, rising to 554 days from the next quarter day on 24 June.
- While landlords are urged to give their tenants comfort in knowing they cannot be pursued for arrears of less than 366 days from 25 December 2020, the government is instructing tenants to pay rent where they can afford it. It remains to be seen how tenants will be able to manage their rental payments when this period is lifted and how landlords will be able to pursue them for arrears.
- The Corporate Insolvency and Governance Act, which received Royal Assent 25 June 2020 restricts landlords’ abilities to serve statutory demands/issue winding up petitions as follows:
- No winding up petition can be presented on or after 27 April 2020 on the ground that a company has failed to satisfy a statutory demand, if the relevant statutory demand was served during the period beginning 1 March 2020 and ending on 30 September 2021.
- As regards the presentation of a petition on the basis that a company cannot pay its debts as they fall due, no petition can be presented by a creditor from 1 October 2021 until 31 March 2022, unless the debt is higher than £10,000 and the creditor has reasonable grounds for believing that (a) Coronavirus has not had a financial effect on the debtor, or (b) the debtor would have been unable to pay its debts even if Coronavirus had not had a financial effect on the debtor. The burden of proof is therefore on the creditor to demonstrate to the Court that it has reasonable grounds for believing that Coronavirus has not had a financial effect on the debtor or would not have mattered in any event. Given that very few businesses have been unaffected by the current pandemic, this will inevitably be a difficult test for the creditor to meet. This should therefore give businesses the opportunity to reach realistic and fair agreements with its creditors.
- A landlord will not be able to rely on a failure to pay the rent to support an application to oppose the grant of a new business tenancy under the Landlord and Tenant Act 1954 on the grounds of a persistent failure or delay by the tenant in paying the rent during the relevant period of 26 March 2020 until 25 March 2022.
The government has announced that a review of commercial landlord and tenant legislation will commence in early 2021. This will review Part II of the Landlord and Tenant Act 1954, different structures for the payment of rent and the impact of Coronavirus on the property market.
If you would like to talk through the consequences for your business, please email us and one of our team will get in touch.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
‘Doing the right thing’ is at the heart of Freeths. Find out more about our excellent client service and the strong set of values that guide the way we work.
Talk to us
Freeths are a leading national law firm with 13 offices across the UK. If you have a query about our services or just want to find out more, why not give us a call?
Contact: 03301 001 014