The impact of COVID-19 on commercial leases
Given the current circumstances, many commercial tenants are expected to suffer from reduced turnover and increased cash flow problems. There is now a considerable strain on corporate occupiers of leasehold premises, particularly in the retail and leisure sector. The true economic impact caused by COVID-19 on the country is unprecedented and its impact on the property industry is no different.
In an attempt to protect businesses, the government has introduced a string of measures to protect commercial tenants from any immediate threat of forfeiture by its landlord for non-payment of rent.These measures were introduced by the Coronavirus Act 2020 which was given Royal Assent on 25 March 2020 and came into force on 26 March 2020, providing some certainty on when and how leases can be terminated, if at all.
Prior to the enactment of the Coronavirus Act 2020, if a business tenant failed to pay rent, a landlord may seek to rely on its contractual right to re-enter (contained within the lease) in order to forfeit the lease and regain possession. Any act of treating the lease as ongoing (such as requesting rent) after the right to re-enter was triggered but before forfeiture could potentially waive the landlord’s right to forfeit. As such, when a non-payment of rent situation arose, the landlord would be faced with a decision, either to forfeit or alternatively, to pursue some other measure to recover rent.
As a result of the Coronavirus Act 2020, Government has introduced measures to delay a Landlord’s contractual ability to forfeit until after the 30 June 2020.This date could potentially be brought forward, or delayed, depending on Government policy.
Whilst this provides welcome respite to commercial tenants, this remains problematic to commercial landlords and may create immediate and significant cash flow problems for landlords who would otherwise have hoped to benefit from an influx of rent across their property portfolio on the usual quarterly days of 25 March and 24 June 2020, or otherwise.
Although losing the ability to forfeit limits a landlord’s options somewhat, it is not all bad news.The legislation has relaxed the usual rules on waiver, which means that a landlord can take steps to contact its tenants up until 30 June 2020, without fear of limiting its options to forfeit after that date.
As such, for those commercial landlords who are faced with such a situation, our Dispute Resolution team are on hand to discuss other potential options available to you.Depending on your situation, a review of your lease would be required initially to be sure, we could explore and advise further with regards to a landlord’s options and potentially:
- Start the pre-action protocol process for claiming any outstanding arrears.A letter before action may be enough to trigger a payment; or
- Subject to any lockdown measures restricting movement, we could potentially explore options relating to the Commercial Rent Arrears Recovery process; or
- Depending on the situation, we could also potentially explore the possibility of issuing a statutory demand and threatening to start the insolvency process in order to enlist a payment.
While the issue of a debt claim and service of a statutory demand are still options, most court proceedings are likely to be delayed. The Companies Court has also, from 23 March 2020, adjourned all winding-up petitions for a minimum of three months.
If you need advice or have any questions please contact us on 01633 413500 or email Adrienne.Brigden@rdplaw.co.uk.