COVID-19: Forfeiture moratorium for commercial leases

Following calls to help those in rented accommodation to weather the financial impact of the coronavirus outbreak, the government announced new legislation to protect tenants from facing eviction from their property. Originally covering only residential leases, this moratorium was subsequently extended to tenants of commercial properties just days before quarterly rent payments were due to landlords. 

This piece of emergency legislation forms part of the Coronavirus Act and prevents landlords from forfeiting commercial leases even if their tenants fail to make their monthly rental payments on time. While it was originally thought to cover non-payment as a direct result of coronavirus only, the reality is that tenants do not have to prove the pandemic to be a mitigating factor and this ruling instead applies across the board.

Originally covering the three month period up to 30 June 20202, this has now been increased by a further three months encompassing the period 30 June - 30 September. This means landlords can only use Commercial Rent Arrears Recovery (CRAR) if they are owed a minimum of 189 days of unpaid rent. The extension to the emergency legislation comes days before the next quarterly rent payment for many in England and Wales is due on 24 June.

In simple terms this ruling allows businesses up and down the country to withhold their rent without landlords being able to commence legal action against the tenant or forfeiting the lease. Prior to this ruling, landlords would typically be able to forfeit the lease after 14 or 21 days following non-payment of rent.

The wording of the legislation makes reference to ‘any relevant business tenancy’, meaning there will be a number of exceptions for certain classes of occupation. These include:

• Licences including serviced offices
• Tenancies at will
• Employment service tenancies
• Tenancies of less than 6 months
• Home business tenancies
• Agricultural holdings
• Mining leases
• Code Agreements under the Electronic Communications Code 2017
• Any other tenancies where Part 2 of the Landlord and Tenant Act 1954 is not applicable.

While this new legislation will be a welcome relief for many businesses as increasingly strict government-ordered social distancing measures, coupled with enforced closure of non-essential retail and leisure spaces, has left them under unprecedented pressure, it is also likely to incite the opposite reaction for landlords who now face the possibility of the next three months with heavily reduced income and no option for recourse. 

This puts many in a position whereby their income is set to take an unexpected and significant hit, with outgoings remaining the same. There is also real concern among landlords that this could have a knock-on effect on the valuation of their properties.

While the rent break was originally set to end on 30 June, the subsequent extension has left landlords wondering whether this legislation has the potential to be extended yet again depending on how the coronavirus crisis continues to develop. This uncertainty piles yet more pressure on landlords already concerned about how they will be able to manage their cash flow and keep up with their financial commitments if rental income is not forthcoming. 

This new legislation amounts to a postponement in the right to forfeiture, rather than a complete abolishment of this type of legal action. This means landlords will be able to commence forfeiture proceedings or take alternative debt enforcement action to recover these missed rental payments once the moratorium is lifted. However, for some, this will be too late. 

With businesses up and down the country bracing themselves for a tumultuous year ahead, many are expected to endure financial difficulties long after the threat to physical health posed by COVID-19 has passed. Some tenants will struggle to bring their rent arrears up to date immediately, while others may find themselves unable to remain in business at all. 

This then leads landlords to question what type of recovery will be possible following the end of the moratorium period and whether this lost ground can be made up.