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COVID 19 – Update – Commercial leases and Rent Arrears

Since the government issued the Press Release titled “Extra protection for businesses with a ban on evictions for commercial tenants who miss rent payments” on 23rd March 2020, we have been inundated with calls from commercial tenants and landlords alike on the effect of the proposal on their obligations and rights under their leases.  The proposal which is now contained in the Coronavirus Act 2020 section 82, places a ban on eviction of tenants on grounds of failure to pay rent, if the inability to pay rent was due to the effect of the coronavirus.   What this Act does not ban are:

  1. Eviction for failure to pay rent relating to any period before March 2020;
  2. Eviction for some other breaches of the lease, i.e., repairs, underletting, or sharing of possession without the consent of the landlord.

Note that the protection acts simply as a stay of execution, and not a waiver of the landlord’s right to evict.  Therefore, unless the landlord waives the right to evict in writing, the landlord can still bring action to evict, though possession will not be granted before 30th June 2020.

Tenants should also be mindful of the fact that the Act only bans eviction and eviction is not the only remedy available to the landlord in case of failure to pay rent.  The other remedies include:

  1. The Forfeiture, i.e., where the landlord simply takes possession by changing the lock. The Act only prohibits forfeiture before 30th June 2020.
  2. Calling on the rent deposit. The landlord can still draw down on the rent deposit in satisfaction of the rent due and could still require the tenant to top up on the deposit at any time.
  3. Charging default interest. Most well drafted leases will provide for default interest to be charged in the event that rent is not paid within a time period.  The landlord is therefore at liberty to continue to charge default interest as long as the rent is outstanding.
  4. Withholding of consent. Many leases provide for the exercise of various rights by the tenants subject to the consent of the landlord.  In most of these cases, one of the most common pre-condition for the grant of such consent is that the tenant shall not be in breach of the lease at the time of the request of consent. Such rights include, exercise of a break clause, underletting, assignment etc.  If the tenant is in arrears of rent at the time of the request, the landlord will be within his rent to withhold consent.  This could have serious effect on the tenant, particularly if the break clause must be exercised on a particular date.

If you require advice on the effect of the Coronavirus Act 2020 on your lease, please give us a call.