COVID-19: No Forfeiture for Rent Arrears
Commercial tenants unable to pay rent because of coronavirus will be protected from eviction.
09 April 2020
The Coronavirus Act 2020 (“the Act”) was fast tracked into law in March 2020 in order to help the United Kingdom manage the current COVID-19 crisis. One key aim of the legislation is to protect tenants from forfeiture or re-entry by the landlord by effectively shifting cash-flow issues to landlords during this time of significant financial difficulty. The measures as they relate to Northern Ireland business tenancies are self-contained within section 83 of the Act.
What is forfeiture?
Forfeiture allows a landlord either to peaceably re-enter a property or to apply to the Court to retake possession of their property following a breach of the lease by the tenant, including the non-payment of rent.
What does the Act say?
The Act sets out that forfeiture or a right of re-entry for non-payment of rent may not be enforced. The protections effectively provide for a rent moratorium up to 30 June 2020, although there is provision allowing for this to be extended.
Rent moratorium - key points at a glance:
- the protections apply to any tenancies to which the Business Tenancies (Northern Ireland) Order 1996 (“the BTO”) applies so, for example, a license to occupy and a tenancy at will are both excluded;
- a landlord will be unable to rely on the statutory ground of persistent delay in paying rent provided for under the BTO during the moratorium introduced by the Act when opposing an application by a tenant to renew a lease;
- there is no requirement for the tenant to demonstrate a coronavirus link or indeed show any level of hardship in order to benefit from the moratorium;
- this is not a waiver of rent, but instead a safety net aimed to keep the lease in place should rental payments not be possible or significantly delayed;
- at the end of the moratorium, the landlord can seek recovery of rent not paid during the moratorium in the usual manner, including by way of forfeiture or taking action against any guarantor;
- the landlord can add interest to the unpaid rent in accordance with any interest provisions in the lease;
- insurance contributions or service charges may be classified as rent under the terms of the lease and therefore may also come within the moratorium;
- if the tenant has entered into a rent deposit deed, then the landlord may draw down against these funds for the unpaid rent and then ask the tenant to replenish the funds;
- concessions granted to tenants by way of a side letter such as reduced rents or turnover-only rents may be contingent on continuing to pay the rent and, in some cases, remaining open; and
- the protections apply only in relation to non-payment of rent so that any other breaches (including insolvency) giving rise to a right of forfeiture may still be enforced, although landlords may experience a difficulty in terms of bringing proceedings before the Courts at the present time;
- if a tenant is exercising a break clause, then (subject to the terms of that break clause in the lease) it is likely that all rent will have to be paid up to date regardless of the moratorium in order for the break to be effective;
- landlords can continue to accept rent during the moratorium even if there is occasional non-payment, without waiving a right to forfeiture; and
- no conduct by the landlord during the moratorium (other than an express written waiver) is to be regarded as waiving the right to forfeit.
Initial thoughts and next steps:
There is no doubt that COVID-19 is affecting the day-to-day business operations of tenants and landlords alike. As a result there is likely to be increasing demands for rent reductions and changes in the frequency of rent payments respectively.
There will be obvious practical difficulties for landlords in pursuing some of the usual remedies for non-payment of rent such as issuing legal proceedings during a period of lockdown. Therefore co-operation between landlords and tenants at this time is likely to make the most commercial sense for both parties. Ideally communications should be opened between both parties at an early stage if the rental terms of the lease need to be re-negotiated to reflect the changing economic circumstances.
Any concession which is agreed on rent should be formally documented and should deal with the amount and length of any concession and whether or not the unpaid rent amount is to be repaid (and, if so, when). For landlords, it would be important to make sure that it is clear that such a concession is personal to the current tenant and not a general variation or waiver of the relevant provisions of the lease. Landlords and tenants should therefore consider seeking legal advice if they are concerned about how the Act impacts upon their rights and obligations under the lease.
If you have any queries please contact Oliver Tighe or a member of the Real Estate team at Carson McDowell for further information.
*This information is for guidance purposes only and does not constitute, nor should be regarded, as a substitute for taking legal advice that is tailored to your circumstances.