May 21, 2020

Relief from forfeiture due to non-payment of rent during the Covid-19 pandemic

This post was written by: admin

Commercial leases typically contain a clause enabling the Landlord the possibility of exercising a right of re-entry or to forfeit the lease in the event of non-payment of rent. During the current Covid-19 pandemic an increasing number of commercial tenants are finding themselves struggling to pay the rents due under their lease, especially since most leases provide for payment of 3 months’ rent in advance of each quarter day. 

On 26 March 2020, the Coronavirus Act 2020 (CVA 2020) came into effect introducing measures to help deal with the Covid-19 pandemic. Amongst these measures was protection against forfeiture for business tenancies in England and Wales (Section 82 CVA 2020).

Section 82 CVA 2020 prohibits a Landlord from exercising their right of re-entry or forfeiture under a business tenancy due to non-payment of rent during the ‘relevant period’. The ‘relevant period’ is defined as being until 30 June 2020, although there is the possibility that this may be extended if the government deems it necessary.

The definition of ‘rent’ is wide and includes any sum the tenant is liable to pay under a relevant business tenancy. This would, therefore, cover service charge and insurance rent in addition to the annual rent.

A ‘relevant business tenancy’ includes a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies. It should be noted that tenancies of an agricultural holding, farm business tenancies, and tenancies not exceeding a term of 6 months are expressly excluded from Part 2 of the Landlord and Tenancy Act 1954 and therefore would not benefit from the provisions contained in Section 82 CVA 2020.

The Act also catches forfeiture proceeds that were commenced prior to the CVA 2020 coming into force, and separate subsections of Section 82 deal with these circumstances.

It is important to note that Section 82 CVA 2020 places a restriction on the Landlord’s remedy of re-entry and forfeiture. It does not alleviate the obligation for the tenant to pay the rent due under the Lease, nor does it preclude the Landlord from pursuing alternative remedies for non-payment of rent (including issuing proceedings for recovery of a debt, deducting money from a rent deposit deed, CRAR, or relying on the interest provisions of the lease for late payments). A Landlord can still exercise their right of re-entry or forfeiture on the basis of other breaches of lease.

If a tenant is unable to pay their rent, they may be able to negotiate concessions with their Landlord such as a rent-free period, a temporary rent reduction, or the ability to pay rent monthly rather than quarterly. Whilst there is no legal obligation on a Landlord to agree to this, most Landlords will prefer to continue receiving at least some rent and retain their tenant rather than receive complete non-payment or an empty premises for which they would become liable.

If a tenant finds themselves unable to pay quarterly rent they could agree reduced rent, rent free, or monthly rent to alleviate cash flow problems in the short term.