Moratorium on forfeiture
Last week the Government announced that it has extended the ban on forfeiture for the non-payment of rent until 31 December 2020. This ban, which was due to end on 30 September 2020, applies to commercial leases in England and Wales. As before, it remains possible for a landlord to forfeit for other breaches of a lease.
The Government has also announced that the restrictions on the use of Commercial Rent Arrears Recovery (CRAR) for recovering unpaid rent have been extended. The minimum amount of unpaid rent before CRAR can be exercised has been increased as follows:
- 276 days’ unpaid rent where the Notice of Enforcement is served on or before 24 December 2020.
- 366 days’ unpaid rent where the Notice of Enforcement is served on or after 25 December 2020.
In practice, this means that a landlord is effectively prevented from exercising CRAR for any rent falling into arrears in 2020.
Statutory Demands/ Winding up petitions
It is widely expected that the restrictions on the use of statutory demands and winding up petitions contained in the Corporate Insolvency and Governance Act 2020 will be extended to 31 December 2020. At the time of the writing, no draft legislation has been published.
What does this mean for the Sector?
The Government’s announcement on the extension of the above restrictions made it clear that landlords and tenants are to continue to work together to agree rent payment options if businesses are struggling, as contemplated by the Code of Practice.
Assignment of a lease and rent arrears
In the current climate, we are aware that there are numerous deals across the sector where leases in estates are being assigned to new operators. One niche point we have come across is the position in relation to arrears of rent pre-assignment.
Coronavirus Act 2020 means landlord can’t waive right to forfeit for non-payment…..
As a matter of law, an incoming tenant is not liable for pre-existing breaches of the lease, including arrears of rent. However, there is a potential loophole that could allow a landlord to forfeit a lease for those arrears after the ban on forfeiture comes to an end. That is because the Coronavirus Act 2020 provides that a landlord cannot waive the right to forfeit a lease for non-payment of rent whilst the ban on forfeiture remains in place.
…..so may forfeit the lease when the ban is lifted
It appears to us that where the arrears relate to the period that the ban remains in place, the landlord cannot have waived the right to forfeit on assignment of the lease and could potentially forfeit the lease when the ban is lifted. This would leave the incoming tenant having to apply for relief from forfeiture and pay the arrears, even though the incoming tenant is not normally liable to do so.
Make sure you are protected
In the circumstances, a tenant would be advised to insert a short clause in the licence to assign that the landlord agrees not to take any action against the incoming tenant in relation to the arrears. A landlord might be advised to resist such a clause. The point requires careful consideration. Although some solicitors remain unaware of this point Freeths have experience of negotiation on behalf of clients.
Contact Adam Boyd for further information.
The content of this page is a summary of the law in force at the present time and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.