Extension of Commercial Property Forfeiture Suspension and New Code of Practice
Key Contact: Jennifer Butcher
The UK government has confirmed that it will be extending the measures currently in place to support commercial tenants struggling to pay rent as a result of Covid-19.
The Coronavirus Act 2020 (‘the Act’) had previously put in place the suspension of a landlord’s right to forfeit commercial leases due to non-payment of rent until 30 June 2020 (regardless as to whether this non-payment was a consequence of Covid-19 or not). The newly announced extension, which will be put into effect by amendments to the Act, will ensure that the suspension remains in place until the end of September.
As well as the extension of the forfeiture suspension, the Government will also extend until 30 September the current restrictions on a landlord’s ability to use Commercial Rent Arrears Recovery unless the sum has been unpaid for in excess of 189 days. The Corporate Insolvency and Governance Bill also looks to extend the banned use of statutory demands and winding-up petitions (where a company cannot pay as a result of Covid-19), also until 30 September.
Alongside the proposed extensions, a new Code of Practice has been announced, which has the intention of assisting commercial landlords and tenants in their discussions around various Covid-19 related subjects such as rent payments and rent holidays. Whilst the Code of Practice is voluntary for businesses, it confirms the message which has been conveyed by the UK government to date which is that landlord and tenants should work together, share the burden of Covid-19 and attempt to find commercial solutions where possible. The message remains that tenants should continue to pay rent (in full where possible and what they can if not). Indeed, despite the suspension on forfeiture, the legal position remains that tenants should still be making payment in accordance with the terms of their lease (and that interest can accrue on any unpaid sums). At the same time, the Code of Practice makes clear that Landlords should acknowledge the difficulties faced by tenants during the Covid-19 pandemic and offer support where possible. However, tenants are expected to be transparent when seeking assistance from Landlords – for example by evidencing any requests they have made for Government assistance concurrently or prior to approaching their landlord (such as the Job Retention Scheme, loans and grants).
The UK government announcement will be a welcome relief to commercial tenants who continue to struggle financially as a result of restrictions which remain in place, or who are only just finding their way financially as they reopen for business. The hospitality sector in particular, which still awaits news as to when it is likely to be able to open its doors, is likely to welcome this announcement. However, commercial landlords will not be so welcoming of the UK Government’s decision. Many landlords have received limited / no rent since March 2020 and had been awaiting the lifting of the forfeiture suspension after 30 June 2020 in order that they could take steps to regain possession of their property. Instead, Landlords now face a further three month wait before being able to utilise the majority of remedies usually available to them upon a tenant failing to pay rent. Furthermore, those commercial landlords who are under pressure themselves from lenders following default on their own loans, have been left feeling unsupported and with continued inability to protect their position.
For more information on any of the topics raised, please get in touch with our Litigation Team.