April 6, 2020
The current Coronavirus (COVID-19) outbreak and the associated restrictions means that businesses are facing an unprecedented situation. Businesses are understandably under pressure with reduced cash flow because either they have been required to close by Government regulations or because of reduced demand. Many businesses are struggling to pay their rent to their landlord. But what can you do if you find yourself in this position and are there any temporary provisions in place to protect businesses during this crisis? The good news is that there are options to consider.
Firstly, the UK Government has introduced a package of financial measures to assist businesses through this crisis. Details can be found here. In addition, the UK Government has introduced specific protection for businesses who rent premises and are presently unable to pay rent due to the Covid-19 restrictions and the resulting economic impact.
If a tenant is unable to pay rent then a landlord is usually able to forfeit the lease. Forfeiture is the termination of the lease or tenancy agreement by the landlord for a breach of one of the tenant’s obligations such as the payment of rent. This can be carried out without recourse to the Courts (if the breach is non-payment of rent). As such it is a very powerful remedy that the landlord can wield.
The Coronavirus Act 2020 prevents a landlord from exercising a right in a lease / tenancy agreement to forfeit for non-payment of rent during the current crisis. This provides protection at least until 30 September 2020 but this date can be extended by Government Ministers if necessary. It is important to note that “rent” extends to any payments due to the landlord under the lease or tenancy agreement such as insurance payments or service charge.
However, it does not provide protection from forfeiture for other types of breaches such allowing another business to occupy the premises (if this is prohibited by the terms of the lease or tenancy agreement) or for breaching a covenant requiring a tenant to trade during certain specified hours. However, such breaches require the landlord to service notice of an intention to forfeit on the tenant and allow the tenant a reasonable time for the breach to be remedied.
The protection outlined above does not mean the rent (and other payments due) are not payable during the period of protection. If payments are missed then it is likely that interest will accrue on them. There are a number of other avenues open to the landlord to seek recovery of the rent such as:
Therefore, the protection from eviction does not eliminate the cash flow problem for businesses; but it creates some breathing space.
Whatever you do, it is important to keep the lines of communication with your landlord open. Remember, you may have built up your relationship with the landlord over many years. There may well be a strong bond of trust between you and the landlord. The landlord is likely to want to retain good tenants through this crisis.
You may want to consider the following:
As a Partner within the Business Services Department, John Stagg is responsible for ensuring that Thomson & Bancks Solicitors deliver high-quality legal advice to our business clients. John can provide legal representation for you in a range of matters including; buying and selling commercial property, developing property for commercial or residential use, leases of commercial property, setting up your business including drafting your partnership / shareholder agreement, and selling or restructuring your business.
James is a Solicitor, specialising in commercial and agricultural property law, undertaking a wide range of work, including sales and purchases of commercial and agricultural properties as well as Landlord and Tenant Act 1954, Agricultural Holdings Act and farm business tenancies. James has experience of negotiating complex land transaction documents including option and promotion agreements, easements, and overage / uplift deeds.
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