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Government extends support for business tenants struggling to pay their rent until the end of 2020

As an emergency measure in response to the spread of COVID 19, the Coronavirus Act 2020 (CVA 2020) came into force on 25 March 2020 and has significant implications for landlords and tenants of commercial premises. The CVA contains provisions to protect business tenants from their landlords recovering possession.

The Government announced on 16 September 2020 that commercial tenants who are struggling to pay their rent as a result of the pandemic will be protected until 31 December 2020.

The Business Tenancies (Protection from Forfeiture: Relevant Period) (Coronavirus) (England) (No. 2) Regulations 2020/994 extend the “relevant period” for the purposes of Section 82 of the Coronavirus Act 2020 to 31 December 2020.

Forfeiture of leases of commercial premises

Practically, this means that landlords will be unable to enforce a right of forfeiture for non-payment of rent in relation to a commercial leases until after 31 December 2020.

The relevant period began on 26 March 2020 and was due to end on 30 September 2020, however, new regulations which come into force on 29 September 2020 have extended the relevant period to 31 December 2020 (or any later date that the Government might set).

The Government has made it clear that business tenants are still expected to pay the rent including any accrued interest during the relevant period as this support is aimed to those businesses struggling the most during the pandemic. If the business tenant fails to make such payment, landlords will be entitled to seek enforcement of the lease by re-entry or forfeiture after 31 December 2020 (or any later date the Government might set).

Commercial landlords are not prevented from enforcing a right of re-entry or forfeiture in the usual way for a breach of other covenants. A landlord must serve a forfeiture notice under s146 of the Law of Property Act 1925 before seeking to forfeit for any breach other than rent arrears.

There may be a limited number of tenancies of commercial premises that do not fall within the ban, but specific legal advice needs to be taken if a landlord wants to forfeit during the relevant period.

Existing proceedings

Where a landlord has issued possession proceedings or a possession order has already been made, these proceedings are currently stayed (on hold) under Practice Direction 51Z and CPR 55.29 until 20 September 2020.

There is a new Practice Direction 55C that sets out the steps required to activate currently stayed claims, as well as procedural changes applying to existing claims and the issue of new claims. Different requirements apply depending on when the claim was issued at court. Please contact us directly for help and advice on outstanding possession proceedings, which are subject to the stay.

Furthermore, a commercial tenant is not required to give up possession before 31 December 2020 in respect of any proceedings to enforce right of re-entry or forfeiture for non-payment of rent.

Commercial Rent Arrears Recovery (CRAR)

The Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020 (SI 2020/1002) which come into force on 29 September 2020 will extend the restriction on landlords using CRAR to enforce unpaid rent on commercial leases until 31 December 2020.

CRAR is a procedure, which allows a landlord to appoint an enforcement agent to take control and sell the tenant’s goods in order to recover rent arrears for commercial premises.

The new Regulations increase the minimum amount of net unpaid rent that must be outstanding before CRAR can be used.

During the Relevant Period, the minimum amount of net unpaid rent must be:

  • From 29 September 2020 until 24 December 2020 (inclusive), 276 days’ rent
  • From 25 December 2020, 366 days’ rent

Other remedies

Although landlords cannot forfeit or use CRAR for non-payment of rent before 31 December 2020, they are not prohibited from taking other enforcement action for non-payment of rent such as:

    • Claims for debt, mesne profits or damages.
    • Claiming against guarantors.
    • Serving a statutory demand, though landlords should note the restrictions on the enforcement of winding-up petitions which are in place until 30 September 2020 (or any later date that the Government may set).

Summary

Landlords and tenants are being encouraged by the Government to continue to work together if businesses are struggling to pay rent, to seek commercial resolutions where appropriate.

If you are a business landlord or tenant concerned about any issues regarding your business tenancy, please do not hesitate to contact us directly for bespoke legal advice.

Correct at time of drafting (18 September 2020)

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