Covid-19 coronavirus has affected all businesses in the UK in some way. It has presented numerous challenges for business across the globe. In the UK specifically, many businesses have had to close due to government guidance to slow the spread of the virus. Some had suffered loss in profits or business interruption/continuity.
If you have been affected by covid-19 and have had to close your business premises, which means shutting down the business too, then you will likely be facing cash flow problems and find yourself unable to afford to pay your rent, through no fault of your own.
Can landlords take action against their commercial tenants if they can’t pay the rent?
The likely action landlords decide on taking when a commercial tenant is unable to make timely rent payments is forfeiture – which means termination of the lease.
Due to this, the government has put measures in place to protect commercial tenants from possible eviction during the COVID-19 pandemic and introduced the Coronavirus Bill which included a moratorium on the forfeiture of business tenancies for three months. This means that a landlord cannot terminate a business tenancy lease on the grounds of non-payment of rent until 30 June 2020.
The recommended moratorium states:
“A right of re-entry or forfeiture, under a relevant business tenancy, for non-payment of rent may not be enforced, by action or otherwise, during the relevant period.”
This is only valid for non-payment of rent and therefore a landlord can still forfeit the lease on other grounds. For example, the landlord can forfeit the lease on ground of breaching their obligations, under the lease. Also, the rent will remain outstanding when the moratorium ends, so the landlord may want to seek forfeiture after the moratorium’s expiration date.
Once the proposed moratorium has expired, the landlord can forfeit the lease for non-payment of rent by peaceful re-admission, which is where the landlord attends the property when the property is empty and changes the locks. The landlord can also forfeit the lease by issuing court proceedings, although this is a much slower process and the landlord may incur considerable legal fees.
If your landlord chooses the option of forfeiture, then this will bring your lease to an immediate termination.
Nevertheless, a landlord cannot forfeit a lease for non-payment of rent until the right to forfeit has occurred in accordance with the terms of the lease, which is usually after a stipulated time frame since the rent became due (e.g. 30 days). It is vital that the terms of the lease are checked, and the tenant is aware of when the landlord has the right to forfeit the lease.
What action can a landlord take despite the proposed moratorium?
Though the proposed moratorium will prevent a landlord enforcing a right to forfeiture, a landlord might still take the following enforcement action:
1. Issue proceedings against a commercial tenant for recovery of rent arrears
Majority of landlords will wait until the period ends, let the rent arrears gather up and then when the business has resumed trading, request that they recover the outstanding arrears. Some landlords will possibly be more lenient by instilling a commercial route to payments through payment plans or agreements in writing. However, there will be some landlords who might consider court proceedings for the full sum of arrears as soon as the time for proposed moratorium ends.
Court proceedings for rent arrears will take a few months, but may be worth it for some, because if they succeed then the landlord will be given all the rent arrears plus any costs suffered during the coronavirus pandemic.
2. Commercial Rent Arrears Recovery (CRAR) to seize goods from the property
If rent has not been given for seven days after it due date, a landlord can order an enforcement agent in writing to take possession of goods from the property belonging to the business tenant up to the worth of any unpaid rent. The enforcement agent is legally obliged to give a tenant seven clear days’ notice before arriving at the property to seize goods.
However, considering the government’s limitations on movement, it would be unlikely such action could be taken currently.
3. Insolvency proceedings against a commercial tenant due to rent arrears
Landlords may look to make their business tenants insolvent due to rent arrears by using a bankruptcy petition for sole-trader individuals or by presenting a winding-up petition or Limited companies.
A notice must be served prior to seeking to making the tenant insolvent and beginning court proceedings.
In light of the Covid-19 coronavirus pandemic, most European countries are applying various measures regarding insolvency proceedings, restructurings and rights of creditors in general. At the same time, accessibility of insolvency courts and practitioners is becoming restricted, so this action is unlikely.
What can a commercial tenant do if they expect they will not be able to pay their commercial rent?
If your business will struggle to make rent payments, then the best thing to do is to communicate with your landlord about your situation in writing and verbally to ensure there is no confusion. We advise you to reach out to them politely and amicably, notifying them of any suspension in rent payments however temporary. Once you have informed them, a legal agreement should be documented.
The moratorium offered by the government implies that such conversations can be had devoid of the risk of instant forfeiture. Moreover, with the economic impact of the coronavirus still largely undetermined, landlords may want to hold on to tenants, as it may be doubtful that landlords will be able to find new tenants swiftly.
An express waiver served by your landlord does not imply they are forgoing their rights to forfeiture of non-payment of rent in the future, so tenants can request this waiver if it is needed.
Contact JMR Solicitors
If you are a tenant struggling to pay business rent, then you can contact our property litigation team to discuss your legal matter. We offer a 30-minute free* consultation – simply call us on 0161 491 3933 or email firstname.lastname@example.org.
*£10 booking fee applied for your free 30-minute consultation. This is to reserve your time slot and date. It will be refunded back to you should you continue to use our service further.