Business Tenants granted relief from forfeiture

Business Tenants granted relief from forfeiture during Coronavirus (COVID-19) moratorium period

The government has announced that Landlords cannot bring forfeiture proceedings for any non-payment of rent under a relevant business tenancy during the ‘relevant period’ of the 25th March 2020 to the 30 June 2020, by virtue of Section 82 of the Coronavirus Act 2020

The Act contains provision for the ‘relevant period’ to be extended more than once by way of statutory instrument, so the total protected relevant period is, as yet, unknown.

What is classified as ‘Rent’?

‘Rent’ includes any sum a tenant is liable to pay under a relevant business tenancy, such as service charges or insurance contributions. In other words, non-payment of any sums under the lease during the relevant period are to be disregarded for the purposes of bringing forfeiture proceedings.

Where new or existing proceedings are already being brought, any period of non-payment of rent must disregard the ‘relevant period’.

Only relevant business tenancies are granted this relief. A “relevant business tenancy” means one falling under Part II of the Landlord and Tenant Act 1954 (the ‘Act’).

Business Tenancies

Section 23(1) of the Act says that Business Tenancies are  “any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.”

It doesn’t matter if the tenant is a person, or an incorporated company.

A business tenancy can arise where the lease prevents use of the premises for a business, if the tenant has used it in breach of this and the immediate Landlord has acquiesced to such breach. However, the Act does not apply to residential tenancies where a Home Business is run.

Business Tenancies include tenancies arising without any formal written lease where the tenant has been in occupation for over 12 months.

The following are not business tenancies which would attract security of tenure under Part II of the Act:

  • Tenancies at Will
  • Written leases for business use of under 6 months (with no right to extend the term at the end)
  • Agricultural tenancies
  • Farm business tenancies
  • Leases granted ‘Code Rights’ ie. relating to land used for telecommunications apparatus under the Communications Act 2003

Do I have to agree to allow the tenant not to pay rent during the moratorium period?

No. You can continue to demand rent as normal, although there are provisions in the Coronavirus Act which say that if you don’t demand rent during that period, you will not be deemed to waiver your right to collect it.

You are still entitled to payment of your rent and can withdraw sums from any rent deposit deed and demand topping up of the deposit, although you will not be able to bring forfeiture proceedings if the tenant cannot top it up during that period, since this could fall within the definition of ‘rent’. You can also employ any other existing rights in your lease, such as demanding rent from a guarantor.

Nothing but an express written waiver of your right to receive rent will give the tenant the right to stop paying rent during the moratorium period.

It should be remembered that if you want to bring the lease to an end for any reason other than non-payment of rent, accepting rent from the tenant while the breach carries on can be deemed acquiescence to it.

Should I negotiate with a tenant during the moratorium period?

You should bear in mind that ‘non-essential’ services have been ordered to close by the Government reducing your tenant’s income. Even where your lease requires certain opening hours for business, these cannot be met and it is unlikely that you will be able to enforce those provisions against the tenant.

The tenant may not be able to survive the ‘lockdown’ of its business meaning a loss of future income for you if you insist on full payment during this period. You should therefore consider the long term repercussions of insisting on payment of rent and consider whether it is possible for you to agree to a lesser sum in the short term.

However, there is no requirement for you to act in good faith. You may want to check the terms of any insurance policy providing cover for unpaid rent and which is likely to be breached if you agree to rent concessions. If you do agree to allow concessions, these ought to be documented either as a deed of variation to the lease or a side letter.

Concessions for Landlords?

There are no concessions for landlords. You must continue to provide any services required by your lease, unless it is varied in the way mentioned above. Social distancing rules and the lock down must be observed in accordance with government guidance.

The Landlord obligations should therefore be considered carefully, especially if your tenant requests concessions –which may be an opportunity to agree on sensible variations to your obligations also.

A quick reminder of the importance of that Act

Security of Tenure

It grants security of tenure to Tenants who have a business lease.

Security of tenure means that the lease does not come to an end on its stated end date and continues until either the Landlord or Tenant serve a notice on the other which has a dual purpose. 1. It invites them to agree on terms of a new lease and if the tenant decides not to take a new lease then 2. It brings the lease to an end. The Act is somewhat more complicated than this and I have summarised briefly for the purposes of this article only – suffice it to say that the Landlord’s rights to bring the lease to an end are severely limited.

Excluded leases

Security of tenure can be excluded when the lease is entered into, by way of serving notices on the tenant and the tenant responding by simple notice, or by swearing a statutory declaration that they understand the rights they are giving away.

This ought to be recorded in the lease itself – usually the notice and statutory declaration are attached to it. Excluding Security of Tenure means that the lease comes to an end on its last day, without automatic right to renewal.

The following are not business tenancies which would attract security of tenure under Part II of the Act:

  • Tenancies at Will
  • Written leases for business use of under 6 months (with no right to extend the term at the end)
  • Agricultural tenancies
  • Farm business tenancies
  • Leases granted ‘Code Rights’ ie. relating to land used for telecommunications apparatus under the Communications Act 2003
  • Home Businesses

This article was written by Adam Corcoran and is correct at the time of writing (30th March 2020). This article should not be taken as legal advice and if you wish to discuss anything in this article further then please contact us on 02392 50 55 00 or email enqs@donnelly-elliott.co.uk