On March 26th 2020, the UK Government introduced the Coronavirus Act 2020. One of the aims of the Act was to provide relief for both private and commercial tenants struggling to pay their rent in the wake of economic disruption as a result of the ongoing Coronavirus pandemic. The lease forfeiture moratorium is due to end officially on March 31st 2021, so does this mean we’re facing the prospect of overwhelming foreclosure?
Lease forfeiture provisions of the Act
Some key provisions of the Coronavirus Act 2020 include:
- Provision of a forfeiture moratorium on commercial leases for rent non-payment, including service charges, utilities, and more as laid out in the lease agreement
- Inaction from March 26th 2020 and extended through to March 31st 2021, or any other date as may be specified in a later addendum or further extension to the Act
- Under the Landlord and Tenant Act 1954, failure to pay rent during the moratorium period is a non-acceptable ground for objection by a landlord for a new tenancy
- At the conclusion of the legislation, landlords may claim forfeiture for payments due during the moratorium period and those due but unpaid after the said conclusion
What does this mean for the future? Are you at risk of a lease forfeiture?
The broad strokes of the Act are that landlords have not been able to pursue their commercial tenants for payment of rent during the aforementioned period. However, as soon as the period defined in the Act ends, without extension, they will be able to foreclose on those leases for rent owed during the moratorium period as well as subsequent rent. There has been a considerable misunderstanding around the nature of the Act – it hasn’t absolved tenants of their rent responsibilities, it has merely granted them a period of non-payment. A period that will end sooner or later.
Should the Act be allowed to lapse? The case for extending the Act
We will see in the March budget what Government support for tenants is going to look like going forward. Supporters of the scheme’s extension will claim there is simply no way for tenants to pay what they owe. The only reason they were not able to pay is because of difficult economic circumstances, and those have not changed – the UK is still under rolling lockdowns to try and combat the spread. Allowing landlords to pursue this unpaid rent, it’s alleged, will merely clog up the court system with claims and result in an even more complex system of ongoing repayments – companies can’t pay what they haven’t got.
The offshoot of this will be an increased likelihood of redundancies in order to make enough savings to afford commercial lease payments, or there may simply be an overwhelming influx of company insolvency as many companies simply buckle under the added financial pressure they’re under.
The case for ending the Act
Supporters of the scheme coming to an end will claim that the Act has placed the financial burden of this pandemic squarely on the shoulders of landlords. In the absence of income from ground rent, that means not only have landlords been unable to profit, but they have also had to continue fielding their financial obligations to their tenants in the wake of minimal income. As the Act’s provisions state that “rent” can include any charges set out in the lease agreement, it means many landlords have had no income whatsoever during the course of the pandemic.
Other critics say that extending the Act is merely “kicking the can down the road”, and that sooner or later there is going to be a time when tenants must face the financial obligations the Act has shielded them from during the pandemic.
The future of the Act remains to be seen
We will see in the March budget what the Government has in store for the continuation of the Coronavirus Act. There are murmurs that the government are currently drawing up plans to extend the moratorium but that has yet to be formally confirmed. To complicate the matter there is the possibility that rules may vary between sectors depending on how hard they’ve been hit by the impacts of lockdown.
Whether they choose to extend, amend, or repeal the Act, the financial implications are going to be felt for a very long time.
Do you have an insolvency or property matter that you’d like to discuss with the team? Alston Asquith have offices in London and Hertfordshire and can arrange a call to provide some initial advice.
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