Coronavirus Act 2020: Impact on residential and commercial tenancies
On 26 March 2020 the Coronavirus Act 2020 (the ‘Act’) received royal assent.
The Act brings in a number of measures to cope with the impact of the national emergency created by the Coronavirus.
Below are the main provisions of the Act on residential and business tenancies, together with further considerations which landlords and tenants may be faced with in the coming weeks.
The Act places restrictions on residential landlords’ ability to recover possession of their property. Broadly, the Act changes notice periods for assured, assured shorthold, demoted, flexible, introductory, protected, secure and statutory tenancies to three months. Specifically looking at the provisions for assured shorthold tenancies, the appropriate details are set out below:
Section 8 Notices, seeking possession on the basis of rent arrears under grounds 8, 10 and 11 must give at least three months’ notice before proceedings are commenced;
Section 21 Notices, where landlords seek possession under the ‘no fault’ ground must also give three months’ notice before proceedings are commenced.
There is provision in the Act for the minister to extend the three month notice period by up to six months. The provisions will apply to all notices for the period commencing 27 March 2020 through until 30 September 2020. There is power for this period to be extended also.
These provisions do not apply to contractual tenancies, licences or tenancies granted in the course of employment. There is no restriction in relation to possession claims against squatters/ trespassers.
The government had previously referred to there being a ban on evictions, however, the Act does not do this and so potentially proceedings could still be issued. However, there are reports that many courts are simply adjourning all listed possession hearings until June. Others are adjourning and relisting with a view to the hearings taking place by telephone, but there would appear to be no standard practice yet.
The Act provides protection from forfeiture for non-payment of rent with regard to business tenancies.
Provided the tenancy is a business tenancy under Part II of the Landlord and Tenant Act 1954 and was a business tenancy during the relevant period of 27 March 2020 until 30 June 2020, then the right of re-entry or forfeiture for non-payment of rent may not be enforced, by action or otherwise (peaceable re-entry). Only an express waiver in writing will be regarded as a waiver by the landlord of a right of re-entry or forfeiture for non-payment of rent. Under the Act, rent is broadly defined as any sum a tenant is liable to pay under a relevant business tenancy.
Unlike the provisions for residential tenancies, the commercial lease provisions will apply to existing proceedings commenced before the relevant period with regard to non-payment of rent. Neither the High Court nor the County Court may, during the relevant period, order possession to be given before the end of the relevant period. Where the High Court has made an order for possession already on terms, for example that all outstanding arrears must be paid by a specific date, and the tenant applies to vary that order, then the court must, when dealing with the application, ensure that the tenant does not have to give possession before the end of the relevant period.
In possession proceedings in the County Court for forfeiture due to non-payment of rent, the court may not specify any period for possession to be given which expires during the relevant period. Orders already made that do give possession during the relevant period are extended until after the relevant period.
In relation to a business tenancy renewal, section 30(1)(b) states that where there is a persistent delay in paying rent, the landlord may use this as a ground to oppose an application by the tenant for a new tenancy. The Act states that any failure to pay rent during the relevant period is to be disregarded in this context.
Tenants will remain liable to pay rent during the relevant period together with any interest that accrues on those arrears. Possession can also still be sought by the landlord for any other breach of the lease, such as disrepair. It is only the ability to obtain forfeiture for non-payment of rent that is frozen during this time. Similarly, there is nothing in the Act which prevents Landlords from still pursuing commercial rent arrears recovery (CRAR) during the relevant period. Similarly, it is also open to the landlord to pursue a claim in the County Court for rent arrears and / or look for payment from any guarantors who are in place.
Given the uncertainty currently, it is likely that landlords would rather hold on to their existing tenants, rather than find new ones.
Similarly, tenants looking to exercise break clauses and get out of leases early should bear in mind that the terms of any break clause will be interpreted to the letter and tenants will be bound by the break periods, the requirement to give vacant possession and payment of rent up to the break together with compliance with any other covenants which may be in in the lease. Complying with such terms either financially or otherwise at the moment may prove difficult.
Landlords should also bear in mind what would happen if their tenant is a company that becomes insolvent.
Remedies such as forfeiture, CRAR and suing for outstanding debts though available, may be of little use when facing a company with no money or assets.
Companies in a Company Voluntary Arrangement or some other form of administration are unlikely to be pursuable without the permission of the court.
If a company has already been wound up and is in liquidation, the landlord is likely to receive, at best, a proportion of what is owed based on the company’s available unsecured assets, and will rank equally with all other unsecured creditors of the tenant.
While force majeure clauses are rare in leases, they are likely to become more relevant as the current national emergency continues.
Given the current uncertainty, the extended notice periods and prohibition on Court orders implemented by the Act, may not impact hugely on Landlords. For tenants, its provisions no doubt provide a welcome breathing space until life returns to normal.
For a practical question and answer session, please see the piece by our Commercial Property team here.
Should you have any questions on residential or commercial leases, please do not hesitate to contact Graham Mead, a partner in our litigation team on 01473 298234, for dispute based queries or Rebecca Cleal (01473 298250) or Graeme Burslem (01473 298220), members of our commercial property team, for any lease based queries.