As a result of the current COVID-19 pandemic, the government has taken a number of steps to try and support the commercial property sector of the UK economy.
On the 25th March 2020 the Coronavirus Act 2020 came into force. This Act went straight through the relevant parliamentary routes without any objection or suggested amendments. Section 82 makes provisions for business tenancies in England and Wales in respect of the non-payment of rent. It sets out that a landlord’s right of re-entry or forfeiture for non-payment of rent may not be enforced until the expiration of what is called the “relevant period”. The relevant period currently expires on the 30th June 2020 but the Act does allow for it to be extended. It has just been announced that period is to be extended to 30th September 2020.
The result of this part of the Act is that a commercial landlord cannot take any action against a non-paying commercial tenant, by way of taking back possession of the property. That of course does not mean that the arrears do not continue to accrue; it also means that the day after the relevant period expires the landlord is entitled to then exercise any right to take back possession for non-payment of rent.
As an additional layer, the government has also come up with a voluntary code of practice in an attempt to mitigate the effect of COVID-19 on commercial premises. The purpose of this code is to encourage landlords and tenants come together to negotiate affordable rental arrangements.
The code attempts to foster communication and collaboration between the parties in order to allow tenants some room to manoeuvre their finances so that when they are able to reopen they can and focus on reinvigorating their business; as opposed to dealing with forfeiture proceedings – which would most likely bring an end to their business.
From a legal perspective, a landlord has no obligation to adhere to the code as it is purely voluntary. However, some may take the view that a commercial tenant who had a buoyant business prior to the lockdown, is likely to bounce back once restrictions are relaxed. From a landlord’s perspective, the prospect of having to go through the forfeiture process and then having an empty unit thereafter might be more damaging to his income stream than renegotiating certain terms.
Landlords must be cautious when renegotiating the rent to ensure that it does not become a contractually binding position after the pandemic has ended. They must also be conscious of any arguments that a tenant might raise at a later date that they have waived any right to forfeit. Therefore, all communications with the tenant should be marked without prejudice and subject to contract. Once alternative heads of terms are agreed, then they should be incorporated in a standalone, separate agreement which references the original lease.
The content of this blog is not intended to be specific legal advice. If you require any assistance in relation to this area of law, please contact Michael Clark for a no obligation telephone consultation on 01392 288981.