If you are a commercial landlord or tenant, what does the Coronavirus Act 2020 mean for you ?

 

BREAKING NEWS!! Matters are moving so quickly that since preparing this article on 31 March 2020, the following update needed to be added !

Working in retail, hospitality or leisure business?

Two reliefs are available for businesses in these sectors:

  • A holiday from business rates for the 2020-2021 tax year.
  • Cash grants up to £25,000 may be given to businesses in these sectors with rateable value over £15,000 but below £51,000 (in England). Small businesses with a rateable value up to £15,000 (in England) may be eligible for a cash grant of £10,000.

Both of these grants are connected to the rateable value of the premises that the business operates from and not the actual amount of business rates that you pay.

Retail & Hospitality / Leisure: This applies to businesses in the retail, hospitality and leisure industry. If the rateable value of the premises as displayed on the business rates invoice is £15k or less, the business will be eligible for a £10k grant. If the Rateable value is between £15k and £51k, the business will be eligible for the £25k grant.

Small business grant: This applies to all small businesses operating from a property and qualifies for small business rate relief, or rural business rate relief and is again connected to the rateable value of the property. Typically, a business operating from a property with a rateable value of less than £15k will qualify for the small business rate relief (you need to apply for this) and will hence qualify for the £10k grant. What is currently unclear between councils is whether a retail, hospitality or leisure business that will independently qualify for both grants can be awarded both or whether it’s mutually exclusive.

Introduction

The current COVID-19 outbreak has made a huge impact on business and economies worldwide. Various measures have been introduced by the UK Government with the aim of mitigating the financial impact on the UK businesses, we are seeing a lot of comment on this and we thought it would be a good idea to try to capture the various strategies specific to each key area. This time, we’re looking at commercial property. We have summarised how the recent emergency legislation known as Coronavirus Act 2020 (The Act) applies to commercial tenancies for both the landlords and the tenants. The Act has been passed to provide assistance and protection to the landlords and tenants.

The Coronavirus Act 2020 (the Act) The Government has announced that leases of commercial premises in England and Wales cannot be forfeited in the next three months if tenants miss a rent payment. So who does this apply to and what does it mean in reality ?

What is a commercial lease?

For this purpose, “commercial lease” is defined by reference to the Landlord and Tenant Act 1954 (LTA 1954), also known as a “business tenancy. It essentially catches a tenancy (rather than a simple licence to occupy) and the tenant is in the property for business purposes.

Before the Act: within a commercial lease, a landlord is entitled to re-enter the property to gain possession if there is a period of non-payment of rent. The period will be specified within the lease and is usually 21 days. Therefore, if a tenant fails to pay the rent in accordance with the lease whether this is formally demanded or not, then subject to the terms of the lease the landlord can attend the property without giving prior notice and take possession by peaceful re-entering.

After the Act: commercial tenancies are now protected by Section 82 of the Act, which states the following: “a right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.” As a result of this, a commercial landlord cannot forfeit the lease for non-payment of rent during the relevant period, but by complying with the Act the landlord is not indefinitely its rights under the lease.

The Act has amended the forfeiture procedure by prohibiting a landlord from taking steps to forfeit the lease during the relevant period. Although the new legislation provides protection from forfeiture, it does not grant any rental relief for tenants. The bottom line is that tenants are still liable for the rent but, if they cannot pay it during the relevant period, they will not lose the premises during that time.

What are the landlord’s questions likely to be here ?

❶         The Tenant has breached other covenants in the lease, can I still forfeit the lease?

  • The Act only applies to non-payment of rent during the relevant period.
  • However, due to suspension on any possession claims being brought in the courts, the landlord should consult with their solicitor before taking any steps to forfeit the lease for reasons unrelated to rent arrears.

❷         Can the tenant stop paying the rent due under the lease?

  • No, the rent remains payable and interest will accrue as normal.

❸         What if the tenant has approached the landlord about the payment under the lease?

  • The tenant may have already approached the landlord and asked for financial assistance in mitigating their financial situation.
  • They may have asked to consider rent holiday, rent reduction or maybe even monthly payment oppose to quarterly or have suggested other proposal of payment of rent.
  • Whilst there are actions that landlords can take against the tenants to enforce the rent payment terms of leases; it is better for parties to the lease to reach an agreement.
  • If the landlord is willing to come to agreement with the tenant, a side letter is the best means to achieve this. This is preferable over variation of a lease, as variation is more time consuming to negotiate and may result in binding the successors in title.

❹         What if the tenant argues that the lease has come to an end as a result of forfeiture or frustration (being unable to benefit from the contract) ?

  • The tenant may argue that the lease has been frustrated as a result of tenant not being able to use the premises. However, this is unlikely to be a successful argument in court unless the remainder of the term is short. In most cases a temporary inability to use premises will not amount to frustration of a lease.
  • The tenant may argue that the landlord has illegally forfeited the lease if the landlord has closed the premises and therefore preventing tenant from accessing the premises. If the landlord had notified the tenant of a temporary closure and discussed these arrangements, it will unlikely amount to forfeiture and the argument is less likely to succeed.

 ❺         What if the tenant has stopped paying the rent?

  • If the tenant has stopped paying rent during this relevant period, the landlord may wish to consider contacting the tenant to see whether a temporary rent payment holiday or a reduction in rent can be agreed between the parties.
  • The difficulty here is to ensure by doing so, this does not inadvertently change a term of the lease and it is advisable that any agreement should be in writing. Again, any such agreements should be recorded in the form of a side letter.

 ❻         Who is responsible for the service charge that are COVID-19 related?

  • If costs are incurred as a result of COVID-19 which are outside the usual service charge expenditure, the tenant may argue that such costs are for landlord to pay and should not be passed to the tenants. Whether or not this succeeds, will depend on the drafting of the service charge provisions in a lease.

❼         How long does this apply for?

  • The relevant period has now begun, the Act came into force on 25 March 2020 and will end on 30 June 2020. This measure coincides with the 25 March quarter day.

The relevant period will then be reviewed by the Government, who will decide whether this will need to be further extended.

Contact Us During these unprecedented times, we at Tiger Law hope to be able to assist you and advise you on alterative options to assist both the landlords and tenants. If you would like a more detailed guidance please get in touch with us on 01233 227 355 or email admin@tiger-law.com.

 

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