The initial statutory protection given to commercial tenants introduced by the UK Government was due to end on 30th June 2020. However further regulations have since been introduced in England and Wales to extend this period to 30th September 2020.
In this article, we will highlight the updated statutory protection given to commercial tenants and provide answers to frequently asked questions that we have received from both landlords and tenants.
1 – What are Landlords prohibited from doing?
The Coronavirus Act 2020 (CVA 2020) prohibits a landlord enforcing a right of forfeiture for non-payment of rent in relation to a relevant business tenancy during the relevant period in both England and Wales. Currently the relevant period is between 26th March 2020 and 30th September 2020. This period is likely to be extended to protect tenants that are recovering from the impacts of lockdown.
For residential tenancies, the Ministry of Housing, Communities & Local Government recently announced that it would extend the stay on evictions for a further four weeks until 20th September 2020. Tenants will still be required to pay their rent and landlords are still able to serve a notice of eviction but only with a six-month notice period in the majority of cases. This six-month notice period requirement is expected to be in place until at least 31st March 2021 in England whereas the notice period requirement is due to end on 30th September 2020 in Wales however under the CVA 2020 there is power to extend this period and introduce further regulations.
2 – Can rent be demanded by the landlord?
The Corporate Insolvency and Governance Act was recently enacted by the UK Government to safeguard against aggressive rent collection tactics by landlords. It has imposed temporary restrictions on the use of statutory demands and winding-up petitions until 30th September 2020. Unless this period is extended by the Secretary of State landlords should be able to commence proceedings against tenants from 1st October 2020.
Similarly, Commercial Rent Arrears Recovery (CRAR) cannot be used unless the tenant has an amount equal to 189 days or more of rent in arrears. This restriction on the use of CRAR has also been extended to 30th September 2020. It is likely that this period may also be extended in line with the relevant period under the CVA 2020.
3 – What is a ‘relevant business tenancy’?
It is generally considered, with some potential exceptions, that the protections under the CVA 2020 will apply to most tenancies which are occupied by a tenant for the purposes of a business.
It is likely that the tenant will still be deemed to be in business occupation for these purposes even where it is unsafe to use the premises due to Covid-19 provided that the tenant communicates to the landlord that it intends to reoccupy the premises as soon as its safe to do so.
Therefore, most leases, underleases, tenancy by estoppel, periodic tenancy (express or implied), agreements for lease and agreements for underlease will be protected under the CVA 2020.
4 – What does ‘rent’ include?
Under the CVA 2020, ‘rent’ is broadly defined and includes any amount payable under the lease. This can therefore include all payments required to be made by the tenant including service charge, insurance payments and utilities.
There is no requirement under the legislation that the tenant’s failure to pay the sums due must have been as a result of Covid-19. Therefore, landlords will still be restricted from forfeiture during the relevant period irrespective of the tenant’s reasons for non-payment of rent.
5 – Will the rent still be due after the relevant period expires?
Tenants will become liable for payments that became due during the relevant period and any becoming due after the period ends.
The landlord’s right to forfeit in respect of the non-payment of rent will be restored immediately after the expiry of the relevant period. Therefore, we advise that both parties should open a dialogue before the end of this period to put in place temporary rent payment arrangements to alleviate the pressure on tenants.
6 – What documents would need to be put in place for temporary arrangements between a landlord and tenant?
If the landlord and tenant come to an agreement for a temporary rent payment arrangement such as a reduction or deferment, it would be prudent to formally document this.
This can be done by a letter of agreement which will include the interest payable on the rent and a longstop date for when the rent will be due. The agreement should also include express written confirmation that the new arrangement is not a waiver of rent to ensure that the landlord can preserve the right to forfeit at a later date.
Alternatively, it may be possible for the landlord to take a charge over some of the assets of the business pending payment of the rent. This should also be carefully documented to avoid any uncertainty.
We at Berry Smith can assist you in drafting these formal arrangements between landlords and tenants to ensure certainty between both parties. For more information on the points raised or if you would like tailored advice to your needs, please contact Kelly Cassemis or Martin Pursall in our commercial property team.
Kelly Cassemis (Associate) – kcassemis@berrysmith.com
Martin Pursall (Partner) – mpursall@berrysmith.com