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Business Tenant Protection from Forfeiture under the Coronavirus Act 2020

30 March 2020. Published by Elizabeth Alibhai, Partner

Following the Government's 23 March press release in which it was confirmed that commercial tenants who cannot pay their rents "because of Coronavirus" would be protected from eviction, legislation is now in force which goes some way to clarify what this means in practice.

The press release can be read here

The Coronavirus Act 2020 (the "Act") received royal assent on 25 March and states that a right of re-entry or forfeiture under a business tenancy may not be enforced by reason of non-payment of rent during the period from 26 March – 30 June 2020, or such later date as decided by further legislation (the "Relevant Period"). Rent is broadly defined in the Act to include "any sum a tenant is liable to pay under a relevant business tenancy". There is also no requirement for the tenant to provide evidence to show that any non-payment arose because of the Coronavirus crisis. Accordingly, the legislation gives tenants a blanket protection against forfeiture for non-payment of all sums payable to their landlord during the period, whatever the reason.  The associated "Coronavirus: Guidance for Landlords and Tenants" advises tenants that "…where they can pay the rent as normal, they should do". But this is only advisory. 

The forfeiture moratorium may help tenant cash flow in the short-term.  However, the Act expressly states that only an express waiver during the Relevant Period will prevent the landlord from forfeiting thereafter. As such, all rent must be bang up to date on 1 July. Otherwise, the landlord can move to seek possession thereafter. Furthermore, landlords retain the right during the Relevant Period to forfeit for other reasons, such as tenant insolvency.

The Act also prohibits any new orders for possession during the Relevant Period, effectively staying existing proceedings in the High Court or County Court for failure to pay rent, even though commenced before the Relevant Period. Where an order for possession has already been given, the Court will either vary it on application by the tenant or it will be automatically extended. 

Finally, for tenants who have security of tenure under their leases, the Act provides that a failure to pay rent during the Relevant Period cannot be used as evidence to refuse a new tenancy for "persistent delay" in paying the rent under the Landlord and Tenant Act 1954.

In summary, the short-term cash-flow problem is being pushed up the chain to landlords and, where mortgage holidays are required and requested by landlords, onto their lenders.  Exactly how these groups weather the storm remains to be seen. A lot will depend on how long the protections are kept in place and what further support the Government might bring to the table. 

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