The Commercial Occupiers' perspective: Going ViREAL - Moratorium on Forfeiture until 30 June 2020

On 23 March 2020 the UK Government announced extra protection for businesses with ban on forfeiture for commercial tenants who miss rent payments.

This was timely as the next "quarter day" on which many commercial tenants pay rent is 25 March 2020 (Lady Day). Commercial tenants who cannot pay their rent due to the coronavirus pandemic can avoid having their lease forfeited until 30 June 2020 under the new bill currently before the House of Lords. 

UK Hospitality CEO, Kate Nicholls has already responded welcoming the news.

It is important to note that this is not a reduction or cancellation of rent, merely a suspension of the right to enforce by termination. Although there is no mention of commercial rent arrears recovery or insolvency proceedings as enforcement, it is hard to see how: (a) any enforcement by seizure of goods under The Taking Control of Goods Regulations 2013 can be compatible with the enforced closures from 21 March 2020 and the stricter social distancing directions ordered on 23 March 2020, and (b) the Companies Court would be inclined to make compulsory insolvency orders in respect of non-payment of rent in the current climate.

The announcement bears similarities to the moratorium on forfeiture in administrations under paragraph 34(4) of Schedule B1 of the Insolvency Act 1986. Under that moratorium, landlords are also prevented from forfeiting the lease (whether by peaceable re-entry or via court proceedings). The crucial difference is that, in an administration, it can still be exercised with the consent of the administrators or the permission of the court. 

These measures, included in clause 82 of the amended Coronavirus Bill introduced to the House of Lords on 24 March 2020, protect commercial tenants under leases (and notably not licences) from forfeiture or the enforcement of orders for forfeiture until 30 June 2020.

The quid pro quo is that, during the relevant period, no conduct by or on behalf of a landlord (unless landlords give an express waiver in writing), is to be regarded as a waiver of its right of re-entry or forfeiture for non-payment of rent.

It is a short-term fix. Realistically, landlords and tenants will need to have a dialogue and enter into voluntary arrangements about rental payments if two quarters' rent with interest falls due on 24 June 2020 and can be enforced by forfeiture a week later. Retail, hospitality and leisure businesses are going to be in particularly poor financial shape when this crisis is over. Further measures will be needed before then, in order to protect the entire sections of the economy which will be insolvent and have serious cash-flow difficulties.

Howard Kennedy's Coronavirus updates will be posted regularly. You can also subscribe to Governmental Coronavirus updates.  A dedicated COVID-19 Government Business Support hub has now also been launched.