Protection from Eviction: a balancing act

Covid-19 has changed the world indefinitely and few businesses will escape an economic hit.

Protection from Eviction a balancing act

Once the gravity of both the immediate and the long term impact of the pandemic became apparent, the government promptly introduced a raft of measures to help protect businesses and individuals from potential financial disaster.

As far as commercial tenants are concerned, many face being unable to pay their rent or other payments due under the lease terms, when it falls due. The new legislation (the Coronavirus Act 2020) protects these tenants from eviction in the case of “relevant business tenancies” until 20 June 2020. Nearer the time, that period could be extend.

The measure was announced just two days before the March quarter day – four days before the Act entered the statute book – giving commercial landlords and tenants not a lot of time to consider the impact of paying – or not paying – the March quarter rent due. However, the measure does not afford tenants a rent-free period, rather it effectively postpones payment.

Section 82(1) of the Act 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.”

  • A relevant business tenancy is defined widely and includes business tenancies covered by Part 2 Landlord and Tenant Act 1954, as well as a tenancy to which that Part of that Act would apply if any relevant occupier were the tenant (which could be read to include landlords who are also tenants under the headlease). This means the 2020 Act does not protect those occupying a business property under a mere licence, or tenants at will.
  • The term ‘rent’ in the Act includes all payments due under the lease, including service charges, insurance contributions and the like.
  • The meaning of ‘relevant period’ is important. It is the period starting from 26 March 2020 and ends on 30 June unless a later date is specified in further regulations in due course.

However, though the legislation is intended to protect those who cannot pay because of the immediate economic impact of the pandemic – having to shut operations, close shops, and so on – the legislation is drafted widely such that even if a business has the financial means to pay the rent can avoid paying – and also rely on the Act to avoid forfeiture of their lease.

The problem is, businesses who choose to take that course could be putting their landlords unnecessarily at financial risk.

The legislation does not protect commercial tenants from forfeiture on the grounds of other breaches of the lease covenants. This means that in addition to the actual sum due but unpaid, landlords could add interest and may even take alternative legal action to enforce its rights under the lease.

So tenants who fall behind on their payments can avoid eviction for a few weeks, but risk being exposed to being sued for payment of the debt, rent arrears recovery action and even being served with a statutory demand, though landlords may then have the logistical and practical considerations of doing so under the prevailing lockdown conditions.

Whether landlords would choose to take such action in the worsening pandemic remains to be seen, and it’s clear that all parties involved need robust legal advice from commercial property solicitors who have the ability to think quickly and with a clear business perspective.

The best course of action in these unprecedented times, for all parties in a legal dispute, is to negotiate a way forward. This is in the best interests of all parties. The landlord could, for example, consider reducing the rent for a short-term period on condition it is paid promptly on a specified date; and specific payments under the lease could be made subject to a payment holiday to help cash flow.

There’s nothing to prevent the landlord evicting the tenant after the ‘relevant period’ expires. In fact, the Act gives the landlord important protection in that “no conduct by or on behalf of a landlord, other than giving an express waiver in writing, is to be regarded as waiving a right of re-entry or forfeiture”.

Could a landlord take a less than favourable approach to the tenant in the event of a subsequent lease renewal? No, because the Act expressly offers the tenant an element of protection. It states that “any failure to pay rent under that tenancy during the relevant period (whether rent due before or in that period) is to be disregarded”, in so far as opposing a lease renewals on grounds of “persistent delay in paying rent which has become due” under the 1954 Act is concerned.

What about commercial tenants who are already subject to forfeiture proceedings for non-payment of rent? There is a measure of comfort: section 82 states that the court cannot make an order for possession which expires before the end of the relevant period.

The immediate future

So, for business tenants who cannot, or decide not to pay their rent and or other sums due under the business lease likely face increased financial pressures in the longer term. But by then, eligible businesses may well have been able to access emergency loans or grant and had their cash flow eased. There is now a coronavirus business interruption loan scheme to support up to a further £1bn lending to small and mid-sized firms; as well as a £2.2bn grant scheme for small businesses.

The Chancellor’s package of emergency measures for the business community also includes a 100 per cent business rates holiday for the next 12 months for all retail, hospitality and leisure businesses in England (regardless of their rateable value).

Businesses will not have to make any VAT payments in the period 20 March 2020 to 30 June 2020 and they will automatically have until the end of the 2020/21 tax year to pay any liabilities for this period.

Commercial property solicitors may increasingly need to consult with their commercial and corporate colleagues to give well-rounded advice to their business clients on these issues.


Posted on 15.04.20