COVID-19 and its effects on Commercial Forfeiture
Forfeiture is a right afforded to landlords to determine the lease where the tenant is in breach of any of its obligations under the lease.
If a tenant is in breach of any of its obligations under the lease, and in particular non-payment of rent a landlord can effect forfeiture either by peaceably re-entering the demised property or by commencing Court proceedings, however, the during the next three months commercial landlords will not be permitted to take such steps.
Coronavirus Act 2020 and forfeiture
In response to Coronavirus the Government has introduced the Coronavirus Act 2020 (‘the Act’) as an emergency measure to deal with the impact of the Coronavirus disease.
The Act has put in place measures, which will prevent landlords from forfeiting a commercial lease for non-payment of rent until 30 June 2020 (subject to any extension).
Whilst protective measures have been put in place business tenants are still under an obligation to pay rent. If a tenant is in breach of its obligation to pay rent, (which is defined under the Act as any sum a tenant is liable to pay under a relevant business tenancy), commercial landlords will need to consider alternative remedies against a tenant’s failure to pay rent.
The Act does not prevent commercial landlords from taking alternative steps to enforce a tenant’s breach to pay rent.
Commercial landlords should consider the following steps:
- to drawn down on a rent deposit;
- pursue a guarantor or a former tenant;
- commencing Court proceedings to recover the rent;
- Commercial Rent Arrears Recovery;
- serve a statutory demand and thereafter commence insolvency proceedings.
In these unprecedented and difficult times commercial landlords may not want to engage in the above steps with the risk of souring the business relationship that they have with ‘good’ tenants. In such circumstances commercial landlords may wish to give time to pay and consider issuing a payment agreement with the tenant to the pay rent or any arrears in specified instalments; however, commercial landlords should carefully consider any agreement that is proposed to avoid inadvertently varying the terms of the lease.
The advantage with this approach, if it does not lead to full payment of rent, is that the landlord’s right to forfeit the lease after 30 June 2020 is preserved as the Act provides that no conduct of the landlord other than an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture.
If you have any queries concerning the above or would like advise on the enforcement options, please contact solicitor, Vijay Murarji within our Commercial and Property Dispute Resolution Team.