The government’s preventative measures to limit the spread of the Coronavirus (Covid-19) pandemic have had a dramatic impact on many parts of the economy. The property lettings market is no different. To mitigate the effects, at least short term, the government has implemented an unprecedented range of emergency measures and a package of support. Only essential businesses and commercial premises are now permitted to remain open. Landlords and tenants will therefore need to consider both the impact and process of closing commercial premises and the effect of specific lease terms, such as rights of access and ‘keep open’ clauses.
Protection for tenants
In recognising that many businesses struggling with cashflow remain worried about potential eviction, the government has announced that commercial tenants who are unable to pay rent because of Covid-19 will be protected from eviction. Measures included in the emergency Coronavirus Act mean that no business will be forced out of their premises if they miss a payment in the next three months. This period can be extended up to six months. Commercial tenants will still be liable for rent after this period, until further notice.
The measures also note that in relation to a business tenancy no right of re-entry or forfeiture for non-payment of rent may be enforced in any way until 30 June 2020 (or such later date as the Secretary of State or Welsh Ministers may specify), which is the “Relevant Period” referred to below. However, during the above period, no conduct by or on behalf of a landlord is to be regarded as waiving a right of re-entry or forfeiture, unless the landlord gives an express waiver in writing.
For landlords who are worried that tenants can terminate their lease on the basis of frustration, there is a very high threshold for the termination of a lease. Ending it solely because of an intervening event can only arise in exceptional circumstances. In seeking answers to the complex issues that may arise, landlords and tenants should seek professional advice on frustration, as well as on force majeure and contractual performance.
The following specific points also apply:
- For existing litigation based on forfeiture for non-payment of rent, the tenant cannot be evicted before the end of the Relevant Period.
- Failure to pay the rent during the Relevant Period will be disregarded for the purposes of section 30(1)(b) of the Landlord and Tenant Act 1954 (persistent delay in paying rent).
- Landlords and tenants will be expected to work together to establish an affordable repayment plan when this period ends.
- Landlords will have to reach out to tenants to understand the financial position they are in.
- Those who have benefited from a government backed Help to Buy equity loan will be offered interest payment holidays if they are struggling to pay due to coronavirus
- The Chancellor, Rishi Sunak, has set out a package of temporary, timely and targeted measures. These can be found here: https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19/covid-19-support-for-businesses
- The Financial Conduct Authority (FCA) has also published the following statement on property fund suspensions:
“The FCA understands that certain Standing Independent Valuers have determined that there is currently material uncertainty over the value of commercial real estate (CRE). In such situations, a fair and reasonable valuation of CRE funds cannot be established. As a result, some managers of open-ended CRE funds have temporarily suspended dealing in units of these funds and others are likely to follow for the same reason.
Suspensions can be used by managers of open-ended funds, in line with their obligations under applicable regulations. In these circumstances, suspension is likely to be in the best interests of fund investors.”
This article does not constitute legal advice and businesses are encouraged to take specific legal advice on the scenario they face. This update is a statement of the current position as at the time it is written.