Coronavirus Act 2020 and forfeiture of leases

What does the Coronavirus Act 2020 mean for landlords?

Commercial rents typically represent a significant expense for businesses, and coronavirus created such economic devastation that, in 2020, the government introduced a moratorium on lease forfeiture by commercial landlords.

The Coronavirus Act, 2020, provides protection to commercial tenants from lease forfeiture, but this moratorium is due to end on 31st March 2021. The government extended the moratorium from its original end date of 30th June, and unless it is extended again, commercial tenants face the possibility of eviction and legal action by their landlords to recover unpaid rents.

So what does lease forfeiture involve and how has the Coronavirus Act, 2020, affected a landlord’s right to forfeit commercial leases?

What is lease forfeiture by a commercial landlord?

When a commercial tenant fails to meet their liability to pay rent under their lease, the landlord may be able to re-take possession of the property or premises by forfeiting the lease.

This means the lease comes to an end, and in practical terms the landlord or their representative – a bailiff, for example – will forfeit the lease by peaceable re-entry to the property, changing the locks and displaying notices regarding their actions.

Clearly, this will have a devastating effect on businesses in rent arrears, which is why the government introduced a moratorium on lease forfeiture for non-payment of rent by commercial tenants.

The Coronavirus Act and lease forfeiture

The moratorium provided for in the Coronavirus Act includes forfeiture of commercial leases of more than six months for non-payment of ‘any sum’ under a lease. This includes a tenant’s liability for outgoings other than the ‘basic’ rent amount, such as service and maintenance charges, and insurance. 

A tenant’s liability for these payments is not removed by the Coronavirus Act, however. The outstanding sums are still payable, which leaves commercial tenants at serious risk of legal action by their landlords when the moratorium ends.

The ability to take control of goods under Commercial Rent Arrears Recovery (CRAR) legislation has also been restricted during this moratorium, but this protection is also due to expire on 31st March 2021. 

Professional support for businesses in rent arrears

Businesses experiencing financial difficult due to Covid-19 face significant financial decline, and further pressures from landlords intent on recovering their rents. Seeking professional assistance in dealing with this situation is key for a successful outcome.

It is highly advisable to make contact with your commercial landlord as soon as possible. By doing so you acknowledge that you take your responsibilities seriously, and you may be able to negotiate a lower rental payment for a period of time.

You might also be able to secure funding to repay your landlord and bolster cash flow in general, or enter into a formal arrangement to repay your landlord and other creditors over an extended time period.

Further funding

Alternative funding, such as factoring and invoice discounting, is typically a highly flexible way to finance a business. Invoice finance provides a regular inflow of cash that is based on your sales ledger.

Depending on your type of business, asset finance may also be appropriate. This offers a cash lump sum that could be used to bring your rental payments up-to-date, and ensure your business is not evicted from the premises.

Company Voluntary Arrangement (CVA)

Company Voluntary Arrangements are legally binding agreements that enable viable businesses to repay their debts under terms outside of the original contractual arrangements.

The duration of a CVA is typically 3-5 years. The arrangement can help your business to re-establish itself in the market, riding out the effects of the coronavirus pandemic on trade and cash flow.

Begbies Traynor Group is the leading business rescue specialist in the UK, and can provide further advice on the implications of the Coronavirus Act and the potential for lease forfeiture.

We can negotiate with your landlord on your behalf, providing valuable professional input that offers reassurance and confidence that you can repay your rent arrears. Please contact our partner-led team to arrange a free, same-day consultation – we operate a broad network of offices throughout the UK.