23 June 2020

Coronavirus and Business Leases

These are difficult times and many business tenants are struggling to pay the rent. To help those tenants keep their business running during coronavirus the government introduced a moratorium on forfeiture, statutory demands, winding up petitions and CRAR (commercial rent arrears recovery) for non-payment of rent under business tenancies. Forfeiture is the where the landlord brings the lease to an end because the tenant is in breach of the lease. Statutory demands are a prelude to winding up and CRAR is where a landlord takes control of a tenant’s goods.

However, this only provides a temporary and partial solution. Not least because the moratoria will expire. Originally the moratorium on forfeiture was due to expire on 30th June. This was extended to 30th September  and has now been extended again to 31 December. However, as soon as the relevant moratorium expires, landlords will be able to forfeit leases, issue statutory demands and winding up petitions and use CRAR to pursue those arrears.

Here we answer some questions on what this means for commercial landlords and tenants:-

Does this mean that rent is not due during the moratorium?

No. The rent is still due and, as soon as the moratorium ends, landlords will be able to  bring proceedings if tenants still haven’t paid the rent. Interest will be payable on the late payment.

What about other payments due or other breaches of the lease?

Both parties still have an obligation to comply with the covenants in the lease but the landlord cannot bring proceedings until late June. Depending on the terms of the lease it may be impossible for the landlord or tenant to comply with certain covenants during the lockdown. There may be other covenants which they will choose not to comply with. But there could be serious consequences, particularly, for example, if tenants do not pay insurance or service charge. Many landlords and tenants will take a pragmatic approach to breaches by the other but each case will be unique and depend on the terms of the lease, the nature of the tenancy and the relationship between the parties.

I am a commercial landlord and my tenant was in arrears before March 26th. Can I make an application for forfeiture?

No. During the moratorium, no applications for forfeiture can be made so it covers old arrears, too.

As a landlord, do I have any other options for pursuing rent arrears besides forfeiture?

The most obvious loopholes have now been closed but you may be able to come to an alternative arrangement with your landlord/tenant (see below).

Can I come to an arrangement with my landlord/tenant?

Yes! Many landlords and tenants are liaising with each other to find their own solutions. For example, you may wish to consider deferring payment of the March quarter’s rent, waiving it, introducing a payment plan or discounting the rent during the lockdown. This should be documented in a side letter or deed of variation.

How can Howell-Jones help?

Howell-Jones is accustomed to acting for both commercial landlords and tenants and we have been open for business throughout the pandemic.  So, whether you are seeking general commercial property advice in this challenging climate, or whether you would like assistance with drafting a temporary variation agreement, our team is here to help. Please speak with Juliet Rayner if you wish to discuss your matter further.

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