By Sangita Manek, partner at Blaser Mills Law.
Throughout the COVID-19 pandemic, significant restraints have been placed on landlords’ ability to recover outstanding rent.
Although landlords in England and Wales retain some scope for recovering rent and other sums due under commercial lease agreements, the current restrictions on the forfeiture for commercial rent arrears have caused many landlords to face huge financial shortfalls, especially if tenants have struggled to pay large amounts of their rent due to lack of trade.
With the restrictions on forfeiture coming to an end, many landlords will be considering their options for retrieving unpaid rent. Here are some of the main legal considerations they should bear in mind as we approach the deadline date.
Current restrictions
Section 82 of the Coronavirus Act 2020 halts forfeiture of commercial rent arrears until 30 June 2021, whether it is by proceedings or peaceable re-entry for the non-payment of any sum during the lease.
The suspension only applies to forfeiture on the basis of non-payment of rent, therefore, if a landlord has a right to forfeiture on any other grounds, they can still exercise this.
Last June, the Government issued a Code of Practice for commercial property landlords and tenants during the pandemic, urging landlords to ‘provide concessions where they reasonably can’. The Government suggested landlords tackle rent arrears through other means, such as a full or partial rent-free period, rent variation, waiving interest on unpaid rent, and using rent deposits, with no requirement for the tenant to immediately top it up.
The benefit of providing such provisions meant that the tenant remained in occupation; therefore, once the tenant was able to reopen for business, rent payments could resume.
Landlords do have the option to pursue rent by means of debt collection through the county court. It is a quick and effective way of retrieving rent arrears, which requires the tenant to take immediate action, and it does not involve seeking to obtain possession of the premises. This way, landlords can force the tenant into action, which then may lead to recovery of some or all of the arrears, or bring the tenant into an affordable repayment programme. This can be useful if conversations have broken down between the landlord and the tenant, or if the tenant is withholding payment.
As restrictions on forfeiture for commercial rent arrears come to an end, many landlords across England and Wales will be breathing a sigh of relief, as they will be able to exercise their right to end the lease and take back possession of their property. However, it is likely that the government will urge landlords to continue to use the suggested concessions to allow tenants time to recover from the economic impact of the past year, rather than enforcing forfeiture immediately.
When restrictions come to an end
In some circumstances, especially where tenants have gone into insolvency, they may not be able to pay their rent in the future, leaving forfeiture as the only option for the landlord to take back possession of their property.
When the current restrictions from forfeiture come to an end, whether that is on 30 June 2021 or further down the line, a landlord could forfeit a lease on the basis of the tenant’s non-payment of the rent, which accrued during the suspension if it remains unpaid.
To successfully forfeit a lease, the landlord will need to establish the right to do so. Non-payment of rent is considered a breach of covenant, and usually provides landlords with the right to forfeit. However, it is advised that landlords proceed with caution and seek legal advice should there be a breach.
Forfeiture should be used even more cautiously after restrictions are lifted, as it is likely that courts will be more understanding of tenants who have been unable to pay their rent as a result of the pandemic. Landlords should also take into consideration how re-lettable the property is during the current climate, and bear in mind that if it remains empty, they remain responsible for business rates.
Landlords are encouraged to provide alternative re-payment options to their clients and legal action should only be considered if the tenant has fallen into serious rent arrears that they are unable to pay back.
Landlords who are considering forfeiture once restrictions are lifted, but are unsure of their legal standing, should seek expert advice in order to establish the best course of action.
