The Coronavirus Act 2020 (the “Act”) received Royal Assent on 25 March 2020. The Act introduced some important changes to commercial leases and the recovery of unpaid rent.

What are the main changes which I need to be aware of as a commercial tenant?

Today, most commercial leases will include a specific forfeiture provision which allows a landlord a right of re-entry into the property if the rent (and other sums payable under the lease) remain unpaid after a certain period of time.  One of the most significant provisions of the Act now provides that this right of re-entry cannot be enforced in any way until 30 June 2020 (or such later date as the Secretary of State may specify), which the Act has deemed to be the “Relevant Period”.  This means that as a commercial tenant, you will not need to worry about the landlord re-entering the property if you are unable to pay your rent during the Relevant Period.

This does not, however, mean that the landlord has waived its right of re-entry all together, unless this is specifically stated in writing.  The landlord will still be able to exercise its re-entry powers after the expiry of the Relevant Period, so it is crucial that you keep up to date with any possible extensions to the current date of 30 June 2020.

Furthermore, the Act does not prevent a landlord taking steps to forfeit a lease for breach of covenant not involving payment of rents (for example, if there is another material breach of the lease).  In practice, it would appear unlikely that a landlord would seek to forfeit the lease in these circumstances.  If a landlord did take steps along these lines then a court would be likely to treat an application made by a tenant for relief from forfeiture favourably where a landlord is perceived to have acted unsympathetically.

What if I am already being pursued by my landlord for recovery of unpaid rent? 

If you are already involved in litigation with your landlord relating to forfeiture for non-payment of rent, the Act states that you cannot be evicted before the end of the Relevant Period.

Does it make a difference if my tenancy is protected by the security of tenure provisions in the Landlord and Tenant Act 1954? 

The only impact that the Act has on the security of tenure provisions will come into effect if and when you decide to request a new tenancy under Section 26 of the Landlord and Tenant Act 1954.  At this point, there are various grounds on which a landlord can oppose the grant of a new tenancy, one of which is persistent delay in paying rent.  The Act stipulates that, if a landlord opposes the grant of a new tenancy on this basis, any rent not paid within the Relevant Period will not be taken into consideration.

Can I unilaterally reduce the rent or stop paying it entirely?

No.  Unless specifically agreed with a landlord, a tenant has no right to decide to suspend or reduce its rental payments.  This applies even where premises are closed (voluntarily or otherwise) as a result of the COVID-19 outbreak.

Furthermore, tenants should be aware that the Act does not require landlords to write off missed payments.  Rent and service charge payments will still lawfully be due, and interest will accrue on any late or missed payments under the terms of the lease.  If arrears remain unpaid once the Relevant Period ends, a landlord can exercise its right of re-entry.  Tenants should therefore continue to pay the rent and other sums due under the lease on time, where possible. 

What other actions may my landlord take to recover any unpaid rent?

It is important to note that although the Act places restrictions on a landlord’s right of re-entry, a landlord has other ways of attempting to recover unpaid rent which remain largely unaffected by the Act.  A landlord remains able to issue debt recovery proceedings and serve statutory demands, and depending on the terms of the lease, a landlord may also be able to draw on the rent deposit or take action against any guarantor.  It is therefore important to prioritise payment of rent where possible and to discuss any issues promptly with your landlord, to try to avoid these alternative courses of action being taken by a landlord. 

Business rates relief 

A further comfort for many commercial tenants can be found in the recent announcement relating to business rates discounts.  In the Spring 2020 Budget, the Chancellor of the Exchequer announced that the Government would increase the business rates retail discount to 100% for one year from 1 April 2020, and also extend the discount to hospitality and leisure businesses.  Last week, the Government announced that estate agents, lettings agencies and bingo halls that have closed due to the COVID-19 outbreak will also now enjoy this discount in 2020-21.  Read the Government’s online guidance for more information – https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses#support-for-retail-hospitality-and-leisure-businesses-that-pay-business-rates.

Going forward 

Aside from the imposition of the Act, the position for businesses in relation to the economic impacts of Covid-19 is changing daily.  It is therefore important to take the following steps to protect yourself and your business as a commercial tenant:

  • Maintain a working dialogue with your landlord and communicate any concerns or issues as soon as practicable.
  • Check the UK website daily for the most up to date guidance on how the UK Government plans to tackle the COVID-19 pandemic.
  • Refresh yourself on the terms of your lease (particularly if the lease has been in place for some time) to ensure you are familiar with your respective obligations. Pay particular attention to provisions relating to interest on unpaid rent and also service charge obligations in the event that you are forced to close the premises.
  • Inform your landlord as soon as possible if you begin experiencing cash flow problems. Endeavour to agree rent deferments, partial payments or other arrangements as early as possible.
  • Ensure that any agreement reached between you and the landlord is properly documented.
  • Consider any arrangements for deep cleaning once business is able to resume, and who will be responsible for the associated costs.

We are experienced in drafting supplemental agreements between landlords and tenants and negotiating with landlord representatives.  If you require guidance in this respect, contact David Whitaker on 0113 280 2118 or Julian Rowden on 114 228 3280 to find out how we can assist you with this.  We also have a dedicated Covid-19 page dealing with changes to other areas of the law.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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