As COVID-19 sweeps the country and the Government forces closure of retail, hospitality and leisure premises, these businesses (and businesses in many other sectors) are now experiencing a significant drop in turnover. Alexandra Messham of Hewitsons discusses the issues.
Commercial tenants – moratorium on lease forfeiture caught between a rock and a hard place…
Emergency legislation announced on 24 March provided tenants with some welcome relief amid increasing pressure to pay their rent. It prevents landlords from repossessing commercial premises where tenants are unable to pay their rent (and any other sum a tenant is liable to pay under any relevant business tenancy) over the next three months ending 30 June 2020. The moratorium is a general prohibition and applies whether or not the tenant’s failure to pay rent relates to COVID-19. In relation to proceedings already taking place in the courts, they will not be able to order the tenant to give up possession before 30 June 2020. In cases where an order for possession has been made and the date for possession falls before 30 June, the date can and will be extended to fall after 30 June 2020.
Some relief comes for landlords as the Bill provides that no conduct by or on behalf of the landlord during the relevant period can amount to waiving the right to forfeit for non-payment of rent and it does not impact the landlord’s ability to charge interest on late payment under other provisions in the lease. This may however be of limited comfort to landlords whose rental income is already substantially down.
It is important to note that although the length of this moratorium may be reviewed and extended, it does not mean the rent is no longer payable. It simply means the landlord cannot take forfeiture action during the three-month period for rent arrears. Once the moratorium is over, the landlord may take action to recover the rent arrears. Effectively it is providing tenants more time to come up with the rent in the hope that businesses can protect jobs and stay afloat in the meantime.
While the legislation means tenants are protected from forfeiture for non-payment of rent over the next three months, it provides little comfort for the future of their business if they cannot pay rent once the moratorium has ended. It is now the responsibility of landlord and tenant to establish a way forward during this difficult time ahead if businesses are going to survive.
Will a rent deferral be enough for tenants whose revenues will be lost rather than simply delayed? The moratorium does not appear to go far enough to help tenants and many will have no choice but to dissolve their business. Conversely, many landlords will struggle as their income stream is decimated. The landlord will have continuing obligations to insure and maintain property during this period but potentially have no payment to meet those liabilities. However, if the tenant dissolves its business then an empty property will also mean the liability for business rates, insurance and security falls upon them. It is not an easy conundrum to resolve.
As mentioned above it is imperative that both tenants and landlords communicate with one another at the earliest possible opportunity to discuss a way to structure repayments during these unprecedented times. Hewitsons can help assist you and your business as you navigate a way through these difficult negotiations. Alexandra Messham is a solicitor in our real estate team. Please contact her by email for assistance.
We pride ourselves on delivering an outstanding service to a wide range of individuals, businesses and institutions including charities, educational and sports bodies. The firm’s size and breadth of specialisms means each client receives the focus it requires.
We operate UK wide and have worldwide reach via our network of independent law firms, LawExchange International.