The Coronavirus Act 2020 And Business Tenancies
14 Apr 2020
- On 25 March 2020 the Coronavirus Act 2020 was enacted. Section 82 provides business tenants with a period of three months’ protection against eviction for non-payment of rent. The period lasts from 26 March 2020 to 30 June 2020 but may be extended by statutory instrument. The protection affects landlords’ rights to recover possession for non-payment of rent but does not release tenants from their obligation to pay rent.
What tenancies have this protection?
- The protection applies to a tenancy to which Part 2 of the Landlord and Tenant Act 1954 applies. Part 2 of the 1954 Act applies where the property comprised in the tenancy is or includes premises occupied by the tenant and occupied by him for the purposes of a business carried on by him.
- Subject to special rules relating to trusts, partnerships and groups of companies, Part 2 of the 1954 Act does not apply where the tenant is not in occupation. But, the protection under the Coronavirus Act is extended to apply to cases where there is a business tenancy but the person occupying the property is not the tenant, but is nonetheless lawfully in occupation.
- Landlords and tenants often agree to contract out of the 1954 Act. But what is agreed is that the provisions of section 24 to 28 of that Act shall be excluded in relation to the tenancy. Part 2 of the 1954 Act still applies to the tenancy and so the special protection afforded by the Coronavirus Act will apply to tenancies that are contracted out.
- The protection does not apply to licences.
- Nor does it apply to residential tenancies. Section 81 and Schedule 29 make provision about them.
What is the protection?
- The main purpose of section 82 is to protect business tenants against eviction for non-payment of rent until 30 June 2020, or later if the period is extended. Thus, it provides that 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 protection does not release the tenant from the obligation to pay, or even postpone the date on which he is obliged to pay. It just bars enforcement of the right of re-entry until after the end of the relevant period. It does not therefore stop interest from running or, subject to practical factors, prevent the landlord from obtaining a money judgment.
- If, as is usual, the lease provides that interest is to be paid on arrears, the interest will accrue. If the lease does not provide for interest, the landlord may still claim it pursuant to statute in any proceedings.
- A right of re-entry can, in the case of business tenancies, ordinarily be enforced by peaceable re-entry or by bringing proceedings for possession. It is clear that during the relevant period a landlord cannot enforce by peaceable re-entry because taking that step completes the process of enforcement and puts the landlord in possession of the premises and ousts the tenant. It is perhaps less clear whether a landlord can commence forfeiture proceedings for non-payment of rent during the relevant period. The point at which forfeiture occurs in the course of proceedings is the time when the proceedings are served. There is then a period of limbo during which it remains open whether the forfeiture will be confirmed by a possession order or not. It might be argued that enforcement of the right does not occur until the possession order is made, or even until it is enforced. But it seems better to read the bar on enforcement as a bar on taking steps towards enforcement and therefore a bar on commencing forfeiture proceedings for non-payment of rent. That this is the correct reading is implied since the section makes express provision in respect of proceedings commenced before relevant period begins, but is silent as to proceedings commenced during the period. In any case, any possession proceedings are stayed for 90 days from 27 March 2020 by virtue of Practice Direction 51Z, paragraph 2.
Non-payment of rent
- Rent is given an extended definition and includes any sum that the tenant is liable to pay under the tenancy. It will therefore include sums that have to be paid for example in respect of insurance and service charges, even if these are not defined as rent in the tenancy.
- Subject to the effect of that definition, the protection only applies to forfeiture for non-payment of rent. It does not prohibit service of section 146 notices for breaches of covenant other than the covenant to pay rent or forfeiture proceedings based on breaches other than non-payment of rent.
- Ordinarily it is easy for a landlord to waive the right to forfeit by taking some step which treats the tenancy as remaining on foot. But nothing done by or on behalf of a landlord during the relevant period will count as waiving a right to forfeit, save for an express waiver in writing.
How long does the protection last?
- The relevant period begins with the day after the day on which the Act was passed. The Act was passed on 25 March 2020 and so the period begins on and includes 26 March 2020. It ends on 30 June 2020 or any later date that may be specified in secondary legislation made by the Secretary of State.
Interaction with the usual quarter days
- Leases usually provide that the landlord’s right to forfeit arises 14 or 21 days after the rent fell due. The period of protection will therefore prevent landlords from forfeiting business tenancies in respect of rent that fell due on 25 March 2020. But, unless the period of protection is extended, it will not affect a landlord’s right to forfeit for rent that falls due on 24 June 2020 and remains unpaid when the right to forfeit arises. Moreover, since nothing done by a landlord during the relevant period will count as a waiver of the right to forfeit, except for an express waiver in writing, immediately after 30 June 2020 (unless the period is extended) a landlord will be able to forfeit for rent that fell due on the March quarter day and remains unpaid.
Impact on pending forfeiture proceedings
- Where forfeiture proceedings have been commenced before the relevant period begins, tenants are not to be evicted from their premises during the relevant period. An order for possession, either in the High Court or in the county court, must be made in terms that ensure that the tenant does not have to give up possession until after the relevant period ends. Since the end of the period may be varied by statutory instrument, possession orders must be drafted so as to take that possibility into account. The protection only applies to the order for possession. It does not make any provision affecting the tenant’s obligation to pay arrears of rent or mesne profits during the period until possession is given up.
Impact on current possession orders
- Some special protection is given where a possession order has already been made.
- Where the High Court has made an order that requires the tenant to give possession during the relevant period unless the tenant complies with a requirement to take some step during that period, the tenant can apply to vary the order. In dealing with that application, the court must ensure that the tenant does not have to give possession before the end of the relevant period. Tenants need to note that they have to make the application in order to gain this protection. If the tenant does not apply, the order will not be varied automatically.
- The position is different in the county court where time is extended by operation of the statute. Thus, where the county court has made an order for possession pursuant to section 138(3) of the County Courts Act 1984 which specifies that possession must be given up during the relevant period, the time for giving up possession is to be treated as extended to the end of the relevant period. The same automatic extension applies where the original date for possession has been extended to a date falling during the relevant period.
Impact on current writs or warrants of possession
- The Act does not address the position where a writ or warrant of possession has already been issued. But by virtue of Practice Direction 51Z, paragraph 2, all proceedings seeking to enforce an order for possession by a warrant or writ of possession are stayed for 90 days from 27 March 2020.
Impact on proceedings under the Landlord and Tenant Act 1954, Part 2
- The protection does not generally affect the right of either landlords or tenants to seek to terminate or renew business tenancies pursuant to Part 2 of the 1954 Act. But where the landlord opposes the renewal of a tenancy on ground (b), i.e. that the tenant has persistently delayed paying the rent, any failure during the relevant period to pay any rent, whenever it fell due, is to be disregarded.
- Section 82 gives business tenants three months’ protection against eviction for non-payment of rent, but it does not release them from the obligation to pay the rent or interest on it. In practical effect, section 82 enables tenants to suspend payment of rent until 30 June 2020, or a later date if the period is extended, but it does not protect them thereafter from any consequence of their failure to pay rent.
- Whether in practice, this protection or conditions generally change the balance of power between landlords and tenants in respect of rent remains to be seen. Landlords may well think that taking possession at the end of the period and trying to find a new tenant in what is likely to be a difficult market will be less attractive than renegotiating with their current tenants. And, although section 82 gives no long-term financial protection to tenants, it will impinge on landlords’ cashflow and gives tenants a period of opportunity to explore renegotiation of their obligations.