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Business Tenancies in England and Wales: Protection from Forfeiture

Business Tenancies in England and Wales: Protection from Forfeiture

Sarajane Drake

Published by
Sarajane Drake

1st April 2020

On Wednesday 25th March 2020, the Coronavirus Act 2020 came into force. It empowers Ministers and the government with authority to respond to the COVID-19 outbreak in the UK. The Act has wide implications for businesses, individuals and public authorities.

Protection from forfeiture etc.
Part of the Act (Section 82) deals with business tenancies in England and Wales.

Under this provision, rights of re-entry (or “forfeiture”) for non-payment of rent cannot be enforced by landlords of business tenancies in the period up to and including 30 June 2020. That period may be extended depending on what happens over the coming months.

It’s not just non-payment rent which is covered – any sum which a tenant is liable to pay under a relevant business tenancy is covered by the act and includes things like service charge and insurance premiums.

Landlords’ Rights
In normal circumstances, forfeiture is a landlord’s right to end a lease in the event of a breach by the tenant. A landlord can only forfeit a lease if it contains a forfeiture clause. While this is a standard clause, it should always be checked as the details vary.

A forfeiture clause will usually allow the landlord to peaceably re-enter the premises when rent is not paid for a specified period (often 14 or 21 days), any tenant covenant is breached, or the tenant becomes insolvent (though current insolvency legislation may restrict what the landlord is able to do).

This right is suspended by the Coronavirus Act until at least 30 June 2020 (or such extended period as may be set out by law).

Waiver of Rights
Once a landlord is aware of a breach of covenant, the right to forfeit can be lost or “waived”. For example, demanding or accepting rent, exercising the Commercial Rent Arrears Recovery (CRAR) procedure or granting a licence to the tenant all generally constitute a waiver of the right to forfeit.

However, under the 2020 Act, a Landlord’s right to forfeit is protected – Landlords simply cannot exercise their right til after 30 June 2020. This means that Landlords can continue to demand and collect rent or other payments, without losing the right to forfeit.

Is it enough?
Tenants must note that the Act does not permit rental deferments or rental holidays. Rent and other lease payments are still payable on the due date with interest accruing due to late payment (where provided for in the lease).

Similarly, the Act does not restrict landlords from using other remedies available to them for non-payment. For example, proceedings to recover rent under CRAR or enforcing orders for the payment of rent and other payments are still competent.

Tenants will therefore need to consider whether they can rely on the Act alone when deciding if they can pay their rents on the due date. As well as the landlord’s other legal remedies, there are often other lease terms which would encourage tenants to pay rent on time, for example an upcoming break option which may require rents to be paid on time and in full at the date of the break.

As a result, whilst the Act provides some form of safety net for occupiers, it is likely that a conversation between the landlord and tenant as regards rental payments will remain the most pragmatic solution in the days and weeks to come.

For any advice in relation to any particular aspects of the above, please contact your Wright, Johnston & Mackenzie LLP contact direct, phone 0141 248 3434 or email enquiries@wjm.co.uk

 

The information contained in this newsletter is for general guidance only and represents our understanding of relevant law and practice as at April 2020. Wright, Johnston & Mackenzie LLP cannot be held responsible for any action taken or not taken in reliance upon the contents. Specific advice should be taken on any individual matter. Transmissions to or from our email system and calls to or from our offices may be monitored and/or recorded for regulatory purposes. Authorised and regulated by the Financial Conduct Authority. Registered office: 302 St Vincent Street, Glasgow, G2 5RZ. A limited liability partnership registered in Scotland, number SO 300336.