Nearly all commercial leases include “forfeiture” provisions that allow a landlord to take possession of the property back from the tenant, and terminate the lease, following a breach. In most cases, this involves a landlord “changing the locks”.
Governmental advice that all non-essential business must shut will undoubtedly have an impact on cash flow across the economy and, of course, ability to pay rent. On 23 March 2020, the government announced that commercial landlords will be prevented from forfeiting a commercial lease, due to non-payment of rent, until 30 June 2020. This will apply across the board and not just to those tenants that are unable to pay rent due to the impact of COVID-19.
These measures will form part of the Coronavirus Bill (CB), which we anticipate will receive Royal Assent shortly. The legislation provides that forfeiture cannot be effected due to non-payment of “any sum a tenant is liable to pay under relevant business tenancy” (section 82(12) CB). Therefore, depending on the terms of the lease, the landlord is likely to be precluded from effecting forfeiture for any sum due under the lease, for example service charge, insurance or interest, as well as “rent” itself. The measures will apply until the end of June 2020, but the government has reserved the right to extend this period if required.
The legislation covers “relevant business tenancies”, which will be the majority of commercial leases but not other types of agreement, such as licences or tenancies at will. The legislation does not prohibit forfeiture of a lease for breaches of other covenants (for example, unlawfully subletting, unlawful use or disrepair) but those are subject to pre-existing statutory controls. Nothing in the legislation prevents a landlord from exercising other enforcement options, such as a County Court claim for non-payment of rent.
One issue which landlords will need to have in their minds is waiver of the right to forfeit, which might prevent them forfeiting a lease once the suspension is lifted. The legislation addresses this, although landlords are advised to seek advice on this issue, as it can be notoriously tricky to navigate. Rent and interest will continue to accrue on commercial leases, which will become immediately due at the end of the moratorium, but the legislation supports ongoing conversations between landlords and tenants about voluntary agreements, which we are already beginning to see in practice.