We have considered previously the Government’s emergency measures to protect commercial tenants from eviction for non-payment of rent for a period of three months. Commercial property specialist, Caroline Entwistle, addresses what has become a common misconception that this amounts to a rent-free period.
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Section 82, Coronavirus Act 2020
There are various ways in which a landlord can enforce the terms of a lease. Of particular importance to the landlord will be their ability to recover unpaid rents and service charges.
The Government has recognised that many commercial tenants – companies, partnerships and sole traders alike – are experiencing serious cash flow and other business interruption issues as a result of the COVID-19 lockdown. As a result, they have put in place a number of new policies in an attempt to mitigate this.
One such measure, which was announced by the Government on 23 March 2020, prevents landlords from ending a commercial lease for non-payment of rent for the three month period ending on 30 June 2020. This was enacted through emergency legislation as Section 82 of the Coronavirus Act 2020. As with all other recent policies aimed at reducing the immediate financial pressure on businesses, there is every possibility that this time period will be extended.
As a result of the announcement of this measure, on the quarter date for payment of rent, 25 March 2020, many tenants simply withheld their rent, having misinterpreted the Government’s measure as a rent-free period and an opportunity to retain as much cash as possible within the business. However, although the landlord cannot end the lease, both the rent and service charges will continue to accrue together with interest, as set out in the terms of the lease. This means that as soon as the emergency measures have expired, a landlord can seek to forfeit the lease.
But there is an even more urgent consideration as there is nothing in the emergency legislation preventing landlords seeking to recover unpaid rent immediately by way of standard debt recovery procedures. Indeed, it seems that many landlords have already commenced enforcement action, serving statutory demands and issuing winding up petitions.
What can be done?
As Caroline Entwistle discussed in her earlier article, we strongly recommend any tenant who may be experiencing difficulties as a result of the lockdown, or other trading issues, to engage with their landlord at the earliest opportunity. In many cases, there will be solutions agreeable to both parties. Potential practical solutions may include:
- a rent reduction to be repaid back in instalments at a later time;
- a rent-free period;
- a period of half rent;
- a change to a turnover rent;
- reduction in the extent of the demise.
Remember, a landlord is more likely to want to work with a tenant who has engaged with them at an early stage and who is looking to work with the landlord to find a practical solution. As Caroline Entwistle puts it so succinctly:
“When we emerge from this crisis, landlords will need readily available tenants and business owners will need premises to operate from – and it makes sense for landlords and tenants to re-engage with people they already know.
“Indeed, over and above the limited protection included in the Coronavirus Bill, the government is actively encouraging commercial landlords and tenants to engage with one another pragmatically to agree a way forward.”