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Forfeiture - during the COVID-19 pandemic

Commercial-Lease

Ordinarily, forfeiture can be an effective weapon for a landlord to obtain compliance with a tenant's contractual obligations under a commercial lease. However, during the COVID-19 pandemic, the use of this weapon for a landlord has been severely curtailed.

In this article we are looking at how the COVID-19 pandemic has affected commercial landlords.

Forfeiture means a decision by the landlord to elect to terminate or bring a commercial lease to an end. Prior to the COVID-19 pandemic, forfeiture could be elected by a landlord for any serious breach of a lease including non-payment of rent, not repairing a property, unlawful assignment or using a property for a purpose which is not permitted. This is now no longer the case.

The Coronavirus Act 2020

The Coronavirus Act 2020 (CVA 2020) came into force on 26 March 2020 and substantially affects the ability of landlords to recover possession of commercial premises. A landlord cannot forfeit a lease for non-payment of rent pursuant to Section 82(1) ā€“ (12) CVA 2020 during the relevant period. The relevant period was defined initially for the period 27 March 2020 ā€“ 30 June 2020. The relevant period has now been extended until 30 September 2020.

It should be assumed that all business tenancies will be affected by the CVA 2020 even if the tenant is not in occupation of the commercial premises by reason of the current COVID-19 pandemic. This restriction on forfeiting a lease for non-payment of rent will also apply to a commercial lease which is contracted out of the Landlord and Tenant Act 1954. A Licence or a Tenancy at Will will not be affected by CVA 2020.

It is important for landlords to understand that whilst forfeiture action cannot be taken for non-payment of rent, rent remains due and payable by the tenant. The CVA 2020 imposes a moratorium or a period of protection where forfeiture cannot be invoked for non-payment of rent. In effect, this moratorium ties the hands of landlords for the period from 26 March up to 30 September 2020 whether rent is unpaid for reasons relating to the COVID-19 pandemic or not.

Commercial landlords with experience of forfeiture will be aware of the need to ensure that its right to forfeit a lease cannot be waived by its conduct. The CVA 2020 is clear that there is no conduct by a landlord that can be regarded as waiving a right of re-entry or forfeiture for non-payment of rent unless the landlord gives an express waiver in writing that this is what it intends to do. The restrictions on forfeiting a lease specifically apply to the non-payment of rent. Rent is regarded as all payments that a tenant is liable to pay under a business lease and so will also include insurance and service charges.


Forfeit for non rent related breaches

Feasibly, a landlord can still forfeit a lease in respect of other breaches of covenant by peaceable re-entry or service of a Section 146 Notice. However, landlords need to be cautious of this right and how it is exercised. Consideration needs to be given to the circumstances in which a tenant may claim relief from forfeiture or wrongful forfeiture if a landlord does not give a reasonable time to remedy the breach complained of and for which the lease was forfeited. The amount of time which is regarded to be reasonable may need to be longer than usual given the restrictions caused by the COVID-19 Pandemic and a Landlord must satisfy itself that a reasonable amount of time has been given to the tenant to remedy the breach of lease.

In addition to the CVA 2020, a landlord's ability to forfeit a lease is also curtailed by the stay in all possession proceedings brought under Part 55 of the Civil Procedure Rules by the introduction of Civil Procedure Rule Practice Direction 51z. The initial stay period was for 90 days but this has now been extended until 23 August 2020.

Summary

In summary, the CVA 2020 is anticipated to have the effect of delaying when that business tenant, who has not paid its rent, may have its lease forfeited. This cannot now take place before 30 September but there is currently no guarantee that business tenants who have not paid their rent by 30 September 2020 will not then face forfeiture proceedings. It is especially so given that the Government has introduced other restrictions on a landlord's ability to take action to recover rent arrears.

How Pinney Talfourd can help

Please do not hesitate to contact either Stephen Eccles on 01708 463202, This email address is being protected from spambots. You need JavaScript enabled to view it. or Lisa Eastwood 01708 46315, This email address is being protected from spambots. You need JavaScript enabled to view it., should any of these issues be of interest or concern to you.
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