In light of the current circumstances surrounding COVID-19 which are affecting many small businesses and individuals including commercial landlords, new legislation has been issued to assist these individuals. If you need help with renewals, evictions or breach of tenancy, our expert business tenancy solicitors are ready to help you.
Legislation governing business tenancies
Business tenancies are governed by Part II of the Landlord and Tenant Act 1954. This will apply wherever the premises let (or part of them) are being used for the purposes of a business, unless that business is purely incidental to residential use. However, where the tenancy agreement prohibits business use, the tenancy will not be a business tenancy unless the landlord consents or acquiesces to the change in use. Similarly, if a business tenant ceases trading from the premises and starts to live in them, that will not usually convert them to a residential tenancy.
Effect of the Coronavirus Act on commercial landlords
Section 82 of the Coronavirus Act 2020 deals with protection from forfeiture in relation to business tenancies. The Act stipulates a ‘relevant period’ whilst the COVID-19 emergency situation continues which currently applies from 26 March 2020 to 30 June 2020, unless extended by the Government.
Forfeiture for non-payment of rent
If the tenant breaches the terms of the lease (including breaching the term to pay rent) and the landlord wishes to evict the tenant, then the landlord needs to forfeit the lease, which is only possible if the lease provides for re-entry in the circumstances of the breach which occurred. Section 146 of the Law of Property Act 1925 also applies and (except for non-payment of rent) requires the landlord to give the tenant notice of the breach and an opportunity to remedy it (if this is possible). If intending to forfeit the lease, the landlord must avoid doing anything which might amount to a waiver of the right to forfeit.
The Coronavirus Act 2020 stipulates:
- A right of re-entry or forfeiture for non-payment of rent may not be enforced during the relevant period
- ‘Rent’ will include all payments due by the tenant under the lease, including, service charge, insurance, repair costs
- The right of re-entry can only be waived by an express waiver in writing
- Where forfeiture proceedings for non-payment of rent have already been commenced, the Court cannot make an order for possession which expires before the end of the relevant period
In line with current public health advice to prevent all non-essential movement, during the relevant period (26 March 2020 to 25 June 2020), there is a suspension of possession cases which will affect new and existing claims.
The grounds to terminate a business tenancy are set out in Section 25 of the Landlord and Tenant Act 1954. Landlords who are seeking possession during this time must show a ‘very good reason’ for doing so.
Potential issues for landlords
The Act will raise concerns for commercial landlords as they are not likely to receive any rent from their properties until at least June 2020 and tenants will be protected from eviction. This will lead to cash flow issues and therefore many commercial landlords will be looking to banks and other lenders at the moment for financial assistance.
If they do not receive income covering service charge, this may affect a landlord’s ability to comply with his or her own obligations under the lease which could result in action from the tenant.
Debt recovery route for landlords
Landlords may seek to use other methods of debt recovery against tenants e.g. Commercial Rent Arrears Recovery or action against guarantors. We can be instructed to advise on the best possible course of action in the current circumstances.
Instruct Property Litigation Lawyers
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