As with residential tenancies, the arrival of Covid-19 has resulted in emergency legislation coming into force as regards commercial tenancies to try, in particular, to provide temporary protection for commercial tenants who find themselves unable to pay their rent at this time and risk losing their tenancies.
The relevant legislation is set out in section 82 of the Coronavirus Act 2020 (the “Act”), which came into force on 25th March, and Practice Direction 51Z of the Civil Procedure Rules (the “CPR”).
No right to forfeit or peaceably re-enter for non-payment of rent
Section 82 of the Act affords temporary protection to commercial tenants who are at risk of having their business tenancies forfeited for non payment of rent. It does this by preventing landlords from exercising a right of re-entry or forfeiture between 26 March and 30 June 2020 (the “Relevant Period”) - although ministers have the power to extend this period. Rent is defined as any sum a tenant is liable to pay under a relevant business tenancy, so extends to interest and service charges.
This means that if a tenant does not pay their rent, service charge or any other sum due under their tenancy during the Relevant Period, their landlord cannot seek to forfeit their lease either by peaceable re-entry or starting forfeiture proceedings.
Crucially, this temporary restriction on landlords being able to forfeit tenancies for non-payment of rent does not mean tenants don’t have to pay their rent. Rent continues to fall due and landlords can continue to make demands for rent without risking waiving their right to forfeit as long as they do not expressly waive their right to do so in writing. The legislation states that no conduct by a landlord during the Relevant Period other than giving an express waiver in writing will be regarded as waiving a right of re-entry or forfeiture for non-payment of rent (section 82(2)). So a tenant’s failure to pay their rent is still a breach of their obligations under the lease and if they fail to pay their rent during the Relevant Period and rent is outstanding as at 30th June they could face forfeiture action as soon as the temporary ban is lifted.
Stay of possession and enforcement proceedings
Practice Direction 51Z of the CPR has brought in a 90-day stay (ending on 25 June 2020) on all existing possession proceedings and all existing enforcement proceedings.
The drafting of the Practice Direction is very broad and catches all commercial tenancy possession proceedings, not just those that are based on non-payment of rent. If landlords have possession proceedings currently in the court system, or possession orders which they are waiting to enforce, neither will progress any further until the stay is lifted. All landlords can do at the moment is issue possession proceedings which, we understand, will be immediately stayed.
Options for landlords
The temporary protection afforded to tenants under section 82 only applies to failure to not pay rent so any other tenant breaches are still capable of being dealt with by forfeiture or peaceable re-entry, although as regards the latter given the current restrictions on movement it seems unlikely that landlords would be able to peaceably re-enter at this time. And as regards issuing proceedings, at present all landlords can do is issue and wait until after the stay is lifted for the matter to progress.
Alternative remedies still remain open to landlords as regards recovering unpaid rent, such as starting winding up proceedings. But, given the current policy climate with the government urging landlords to be flexible and talk to tenants about their inability to pay rent at this time while such steps are still open to landlords, it is likely that they might be frowned upon and the better route, undoubtedly, is to keep lines of communication open with tenants (and vice versa) and try and find solutions that are workable for both parties.
*See update on landlords' options in article dated 27.04.20.*
For further information on any of these issues please contact Sam Taylor.