Commercial property and the Emergency Coronavirus Act

The industry deals with yet another delay to the forfeiture of commercial leases.

On June 16 2021, the government revealed its plan to prolong the legalised delay of forfeiture for commercial leases due to the Emergency Coronavirus Act.

The Act, in place since 23 March 2020, is a topic we have been following closely within the Nolan Redshaw office. It currently guarantees that leases cannot be forfeited for non-payment of rent for a three-month period. This affects all types of commercial tenants but still permits forfeiture at the end of the period for non-payment.

Landlords are still able to claim forfeiture after the three-month period (either by peaceably re-entering the premises or by issuing a claim for forfeiture).

But currently the protection applies to all business tenancies within the meaning of the Landlord and Tenant Act 1954.

Understanding the 1954 Landlord and Tenant Act.

The 1954 Landlord and Tenant Act allows a landlord to oppose the right of a protected tenant to renew where there has been a “persistent delay in paying rent” under section 30 (grounds b) with no compensation to the tenant payable.

This could be a problem for a tenant who is relying on the moratorium (legalised delay period) of forfeiture when they’re lease comes up for renewal. The tenant will also be conscious that a tenant’s behaviour during the moratorium period could give the landlord a ground to oppose their renewal in future.

The government stated that tenants should start to pay rent either in accordance with their lease or with the arrangements they have agreed with their landlord following guidance set out in the Code of Practice governing commercial property relationships, which was introduced in June 2020.

The moratorium only applies to non-payment of rent. Landlords can continue to exercise other rights of forfeiture; for example, a tenant is not allowed to cause wilful damage etc.

The current state of play

UK Hospitality and British Retail Consortium (BRC) told MPs that both sectors have accrued a combined £5bn in rent debt.

Data for the first quarter of 2021 shows that only 74% of rent was collected by landlords 60 days following the end of the period after tenants were affected by the pandemic.

Hospitality, leisure, and retail operators have also benefited from a business rates holiday since the start of the crisis.

Industrial tenants would appear largely unaffected, and some have called for the Emergency Coronavirus Act 2020 to be reviewed, with the only sectors severely hampered by the crisis, namely Retail and Leisure to be offered assistance however…

Planning ahead for 25 March 2022

Commercial tenants are expected to “sort out their differences” by early negotiations with their landlords by 25 March 2022. Otherwise, they risk facing the consequences of either Court action or forced arbitration.

Irrespective of the moratorium, tenants are still required to pay their rent within the pandemic or afterwards. Although the arbitration process will only apply to pandemic arrears, and there is every chance that the legislation may incorporate a variety of exemptions so that some tenants may still be at risk of action for pandemic arrears. In the meantime, the Courts have a significant accumulation of rental proceedings and as such a substantial value of unpaid rent will be locked up in those proceedings.

If a tenant and their landlord are forced into binding arbitration, it may mean the tenants are still liable to face proceedings for post–pandemic rental payments which could leave them in a worse financial state than if they had agreed to concessions with their landlord directly.

During these somewhat challenging times we’re aware that both landlords and tenants may be cautious but with the Act set to end of 25 March 2022, it is time to start thinking about your options.