With the nation facing a period of unprecedented disruption in order to protect citizens from the spread of COVID-19, the UK Government announced measures on 23 March to protect commercial tenants from lease forfeiture for a period of three months.
The timing is significant, given that tomorrow, 25th March, is one of the traditional “quarter days” when rents fall due.
This follows the earlier announcement that new residential repossessions would be halted during the global public health crisis.
What exactly does this development mean for landlord and tenant relationships?
What is forfeiture?
A right for a landlord to forfeit a lease may arise when there has been a breach of the tenant’s lease obligations. It allows for the lease to be terminated by the landlord before the expiration of the term.
Forfeiture allows a landlord to take back possession of the premises and for this reason is often referred to as re-entry.
Forfeiture action may be taken through issuing Court proceedings to obtain a possession order or by changing the locks of the premises. The latter method is often referred to as “peaceable re-entry”.
When might the right to forfeit arise?
Although the right to forfeit a lease may be implied, commercial leases usually include an express forfeiture clause which details the precise circumstances in which a landlord may exercise its right to forfeit the lease.
Forfeiture will usually arise where there are unpaid rents or other sums due under the lease (often after the expiration of a grace period).
Most leases will also allow re-entry when there has been any other breach of the tenant’s covenants or the tenant becomes insolvent. The exact forfeiture rights available will always depend upon the precise wording of the particular lease.
How does the government’s announcement impact upon forfeiture rights?
The UK Government has confirmed in its press release that business tenants who are unable pay their rent because of coronavirus “will be protected from eviction”.
There is acknowledgment in the announcement that many landlords and tenants are already seeking voluntary arrangements where cash flow difficulties have arisen due to the present circumstances.
Business Secretary Alok Sharma MP has said that this action by the Government:
“…will provide companies with an essential safeguard in these highly unusual times as they deal with the impact of coronavirus.”
What happens next?
The government clearly considers that a degree of forbearance between landlords and their commercial tenants is necessary during this difficult period for the economy.
As of this week, most retailers (save for those focusing on food and other essential supplies) can no longer trade as shops. At the same time offices are becoming deserted as working from home becomes the new normal wherever possible.
Both landlords and tenants will be waiting to see exactly how this temporary ban on forfeiture of commercial leases will be implemented and whether, if the country remains in effective lockdown, it will be extended beyond the March 2020 quarter.
It is also possible that the government might act to impose other restrictions on landlord remedies. However, for now, there remain other options that landlords might explore and this further highlights the importance of a prompt and continuing dialogue between landlord and tenant. Landlords and tenants will also want to keep a close eye on government aid and other measures to alleviate the pressures on both.