The government's emergency measures to protect tenants, introduced as a result of COVID-19, are due to expire on 30 September 2020. With no government indication of any intention to extend this deadline, both landlords and tenants should be considering their next steps.
In response to the disruption to trading and business resulting from COVID-19, the UK government introduced the following emergency measures earlier this year, in a bid to give tenants much-needed breathing space:
- In March 2020, the Coronavirus Act 2020 introduced a moratorium on forfeiture for non-payment of rent by commercial tenants, to expire on 30 June 2020 (see our previous alert here);
- The subsequent Corporate Insolvency and Governance Act 2020 introduced further, temporary, protections for tenants struggling as a result of the COVID-shutdown, preventing landlords from serving statutory demands or winding up petitions before 30 June 2020 (see our previous alert here); and
- The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (COVID-19) Regulations 2020 prevented the use of Commercial Rent Arrears Recovery (CRAR) procedures before 30 June 2020 unless and until 90 days' rent was outstanding (see our previous alert on both measures here).
The deadlines for the application of these provisions were subsequently extended to 30 September 2020 (with the CRAR unpaid rent requirement extended to 189 days). This deadline now looms large on the horizon, and the government has given no indication that a further extension of these emergency measures will be granted in respect of commercial leases.
Retail and landlord organisations are, unsurprisingly, in disagreement over whether an extension of the suspension of rent 'permission' pursuant to the forfeiture moratorium would be the right way forward. At its best, the moratorium has provided a lifeline for struggling tenants, but conversely has led to hardship for some landlords. The British Retail Consortium continues to call for a further extension of the ban on commercial evictions, whilst the British Property Federation, Revo and UKHospitality are lobbying the government to introduce a Property Bounceback Grant to help retail, hospitality and leisure tenants and landlords through the pandemic-induced economic crisis. The proposed grant would cover up to 50% of rent and service charge between March and September, be conditional on an agreement between landlord and tenant to account for the remaining 50% of those commercial rents, and be focused on those businesses closed for the longest period and unable to generate revenue. However, there has as yet been no indication from the government that it intends to commit further funds in support of these industries.
The government may be hoping that its 'Code of Practice for commercial property relationships during the COVID-19 pandemic' will encourage landlords and tenants to adopt an ongoing spirit of fair play and co-operation to get through these exceptional times. Our previous alert on the Code may be viewed here. Expiring in June 2021, the Code sets out guidance for transparency and collaboration between parties in relation to rental payments and arrears. However, the Code remains voluntary and non-binding, and may not be relied on to bring certainty to landlords and tenants who fail to negotiate and/or agree terms for repayment of any COVID-19 related arrears.
It is therefore vital that landlords and tenants now consider their next steps beyond the anticipated withdrawal of these statutory emergency measures.
Implications for Tenants
The forfeiture moratorium introduced by Coronavirus Act 2020 suspended, rather than cancelled, the duty to pay rent under commercial leases. As such, any amounts of rent, service charge, insurance, interest and VAT invoiced but not already paid by tenants for the moratorium period remain payable, and will immediately fall due on 1 October 2020, together with any interest chargeable under the lease. Many landlords and tenants have, in the interim, sought and agreed rent concession arrangements reducing or waiving rent, deferring payment or altering payment periods. The terms of such concessions should now be closely reviewed to see whether they will prevent landlord action in respect of arrears once the moratorium expires.
Where the tenant is not in funds to repay the arrears on or before the 30 September, and has not agreed alternative arrangements for repayment, now is the time to do so. Once the 30 September deadline passes, landlords will again be entitled to instigate forfeiture proceedings for non-payment of rent.
Implications for Landlords
Receipt of the September quarter's rent is a potential danger zone. Tenants should be encouraged to make that payment on or before the September quarter date. Under well-established legal principles, there is a risk that accepting rent for the September quarter AFTER 30 September but BEFORE dealing with any outstanding breach of covenant (such as the failure to pay rent during lockdown) will waive the landlord's right to forfeit the lease for such breach. The Coronavirus Act specifically provides that landlords do not waive the right to forfeit by treating the lease as continuing during the moratorium period. However, once that period expires on 30 September, landlords will need to either act promptly. Any outstanding arrears will remain due, but the landlord may lose its forfeiture right in respect of those arrears.
If in doubt, the Landlord may consider either refusing to accept the September rent, or expressly agreeing alternative repayment arrangements with the tenant that will override the risk of inadvertent waiver of forfeiture rights.