April 5, 2020
The Coronavirus (COVID-19) outbreak is presenting us with an almost unprecedented situation. The spectre of economic slowdown, however temporary, appears to be upon us. With that, and with current movement restrictions, businesses are understandably struggling, with their cash flow under increased pressure. Similarly, many home renters may have seen their income drop due to redundancy or furlough arrangements. This, in turn, means that many businesses and home renters are predicted to struggle with their rent payments, at least in the short term.
First, you may want to review our article on remedies available to landlords of commercial premises here: https://www.tbsolicitors.co.uk/my-tenant-cant-pay/
However, in the present national crisis the UK Government is encouraging landlords to have conversations with their tenants and to reach voluntary agreements. It is in the interests of the economy at large for businesses and home renters to weather the present storm so the country is best placed to bounce back once the crisis is over. The Government has introduced some additional protections from eviction for business tenants and home renters and financial support has been made available for many. If you rent property as part of your business then you may qualify for financial support from the UK Government. Full details can be found here.
When discussing matters with your tenant it is important to understand your rights under the terms of your lease and the emergency measures that have been put in place.
Particular tenants have been given temporary protection from eviction due to non-payment of rent (and other sums due under a lease or tenancy agreement) until 30 September 2020 (but this is extendable) by virtue of section 82 of the Coronavirus Act 2020: business tenancies (where the tenant occupies premises for the purposes of its business) and residential tenancies (primarily assured shorthold tenancies). It does not, for example, afford protection to other types of tenancy such as of agricultural land.
Rent includes all sums due under the lease i.e. it will include insurance payments, service charges, and any other payments that the tenant is liable to make to the landlord under the terms of the lease. These sums will continue to accrue during the operation of the protection from eviction period, and, depending upon the terms of the lease, it is possible that a landlord may be entitled to interest on a late payment.
Failure to promptly take action to evict can sometimes be taken to be evidence of waiver by the landlord of their right to forfeit the lease (and so the opportunity to terminate the lease can be lost). However, the emergency legislation makes it clear that failure to forfeit during the period which the tenant is protected will not be interpreted as a waiver. Therefore, the option to forfeit for non-payment of rent (including insurance rent, service charge, etc.) will still be available if the sums have not been paid by 30 September 2020 (but remember that the Government may well extend this if businesses and home renters are still experiencing hardship at that point).
There does not seem to be any moratorium on seeking to recover the rent and other sums due through the courts. For example, issuing a debt claim in the courts and the use of Commercial Rent Arrears Recovery (which involves the seizing of a tenant’s assets) seem to still be available. Similarly, Landlords do not currently seem to be prevented from serving a statutory demand during the protection period. A statutory demand can be issued for any debt exceeding £750 and non-payment within 21 days of service of a statutory demand will give a landlord a right to commence bankruptcy or winding-up proceedings. However, landlord’s should think carefully before taking such action as it may result in the permanent loss of the tenant and could attract negative publicity in the current climate of national emergency.
If your tenant has provided a guarantor or a rent deposit then it would be prudent to pursue these avenues as soon as possible and before the rent arrears accumulate. However, there is a risk that pursuing these options mean you lose the right to forfeit the lease once 30 September 2020 is reached and legal advice ought to be taken.
Landlords should bear in mind that in many cases the tenant’s inability to pay will be temporary. Often the tenant will have been with their landlord for many years; possibly for more than one lease term. You may well have developed a good working relationship and trust between yourself and your tenant. That relationship and trust can be invaluable.
If a landlord removes their existing, trusted tenant, simply because they cannot pay the rent, and replaces them with a new tenant, the landlord may well be entering into a relationship with an unknown quantity. Alternatively, having removed the existing tenant, the landlord may be unable to find a replacement. This may become particularly relevant if the current financial crisis should deepen. So what other options are available?
The issue for most tenants at the moment is cash flow. Many business tenants are trying to take up the Government’s Business Interruption Loans. Home renters may be waiting for redundancy payments or, if they are self-employed, they may be waiting to receive a government grant under one of the business support schemes.
Dialogue with your tenant is essential to understand the particular circumstances.
However, if funds are unlikely to be made available immediately, what else, therefore, can be done to bridge the gap?
One option may be a “rental holiday”. This normally takes one of two forms where the landlord either:-
Of course, there is no guarantee that the tenant will not fall victim to the financial situation and, therefore, be unable to pay the deferred rent. However, there is a school of thought that landlords may be better off retaining existing tenants, with whom they have an existing relationship, even if that means taking a risk on recovery of rent in due course. This may well be especially true for commercial landlords if the commercial property rental market should suffer from a contraction as a result of the current financial situation.
I have mentioned above, and will repeat, that it is crucial for landlords and tenants to maintain the lines of communication at this difficult time, in order to give the greatest possibility for flexibility in their existing relationship.
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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