COVID-19 And Commercial Rent Arrears
If you are a landlord of commercial premises, you may find that your tenant is already in rent arrears following the COVID-19 lockdown.
Your tenant may have been ordered by the Government to stop trading, especially if they use your premises for hospitality purposes. Even if their business is permitted to continue trading they may be experiencing a downturn of trade due to the Government’s lockdown measures implemented to stop the spread of the virus. These measures may be having an impact upon your tenant’s cash flow and ability to pay their rent at this time.
In normal times a landlord would usually have the right to evict their tenant for non-payment of rent. This is permitted under common law where there isn’t a written lease or if there is a written lease, there is usually a clause called a ‘forfeiture clause’ which allows the landlord to re-enter the premises peacefully and take back possession of premises once a certain level of rent arrears has been reached.
However, under the Government’s new Coronavirus Act 2020 these forfeiture rights have been halted. These rules presently run until 30 June 2020 however they may be extended if required.
So what does this new law mean? It means that tenants can remain in occupation of their business premises even if they are unable to pay their rent at this time. Landlords cannot evict their tenants for non-payment of rent whilst ever this restriction remains in place.
The intention behind the new law is to support businesses who have been either ordered to close or severely affected by the pandemic lockdown measures.
The liability to pay rent remains however. Tenants will still owe their landlords the rent they should otherwise have been paying during this time. This means that tenants are racking up debts which they must pay in the future to their landlords. There are a raft of financial support packages available to businesses which may help tenants and landlords weather this difficult time.
The law is currently silent on what will happen once this moratorium on forfeiture is lifted. The Government guidance encourages tenants and landlords to work together to agree an appropriate repayment schedule for any rent arrears which have accrued during the pandemic lockdown. Tenants are therefore encouraged to approach their landlords to begin those discussions now and landlords are encouraged to take a pragmatic approach to the situation. Problems are undoubtedly likely to arise if one or either party does not or refuses to take this sensible approach.
It is likely that landlords will in the future be permitted to evict their tenants for non-payment of rent and to some extent this may just be deferring the inevitable for a lot of landlords and tenants to a time in the future once we have come out the other side of this pandemic.