Landlords have been unable to exercise a right of forfeiture (re-entry) in respect of business tenancies for non-payment of rent since 21 March 2020, pursuant to s.82(1) of the Coronavirus Act 2020 (‘CVA 2020’). Those restrictions on forfeiture are due to end on 25 March 2022, in relation to ‘non-protected rent arrears’.
Protected rent arrears are arrears of rent for any period where a business was forced to close by the Government due to COVID. The restrictions on forfeiture in relation to ‘protected rent’ are likely to continue for at least another 6 months and the parties will have a right to refer those arrears to a binding arbitration process under the Commercial Rent (Coronavirus) Bill (‘Bill’), which is due to come into force either on or shortly after 25 March 2022.
What is changing?
From 26 March 2022, landlords will again be able to forfeit business tenancies for non-protected rent arrears, which are any arrears which:
- had accrued before 21 March 2020, when the CVA 2020 came into force;
- have accrued since 18 July 2021 in England (and 7 August 2021 in Wales), which is when the final protected period under the Bill came to an end; or
- accrued at a time during the protected period, where the business was not required to close. There is guidance to the Bill which sets out the periods when each business was forced to close due to COVID, as some businesses were forced to close for longer than others. For example, hospitality venues were required to close at a later date than non-essential retail and leisure premises.
If forfeiture action is intended, then the landlord will need to ensure it does not waive the right to forfeit when the remedy becomes available to it again. Usually, demanding the next quarter’s rent (or any other conduct which acknowledges the continuation of the lease) waives the landlord’s right to forfeit the lease for any existing rent arrears. However, s.82(2) of the CVA 2020 prevents landlords from waiving the right to forfeit a lease based on rent arrears during the moratorium period (i.e. between 21 March 2020 and 25 March 2022), unless they do so expressly in writing.
This means that from 26 March 2022 commercial landlords will still be able to forfeit a lease for any non-protected rent arrears, even if they have been demanding and/or accepting rent since the moratorium came into effect on 21 March 2020.
A potential issue for landlords
From 26 March 2022, the restrictions under the CVA 2020 which prevented the landlord from waiving the right to forfeit will no longer apply. That means if, on or after 26 March 2022, a landlord demands or accepts payment of rent for the March 2022 quarter from a tenant who has existing non-protected rent arrears, the landlord will waive the right to forfeit in reliance on those arrears or (potentially) other existing breaches of covenant.
If a landlord does accept payment towards historic rent arrears, they should be aware that this will waive the right to forfeit for any arrears or (potentially) other breaches which existed at the time the historic arrears for which rent is tendered fell due. For example, if a landlord accepted payment of all or part of the September 2021 quarter rent after 26 March 2022, the landlord would still be able to forfeit for any arrears of the December 2021 quarter but not any arrears or (potentially) other breaches which had accrued by 29 September 2021.
What steps can landlords take now?
Commercial landlords may now wish to consider identifying any commercial tenants who have non-protected arrears, and consider whether it is desirable to forfeit the relevant lease in reliance on those existing arrears.
Where a landlord identifies any tenants with non-protected arrears and wishes to preserve the landlord’s right to forfeit, a landlord or its agent or accounts teams should:
- ensure that they do not demand or accept payment of the March 2022 quarter’s rent or any subsequent rent or other charges which fall due on or after 26 March 2022;
- if applicable, that they do not accept payment of non-protected arrears which arose before March 2022, if the landlord wishes to preserve their right to forfeit for any remaining prior non-protected arrears;
- take any other steps which acknowledge the continuation of the lease on or after 26 March 2022;
- where a landlord does receive a payment from the tenant which has not been paid in connection with any specific period or arrears or other charges, ensure it is allocated to the oldest non-protected rent and communicate this to the tenant; and
- ensure that any payment made by the tenant which is specified to be for the March 2022 quarter or other recent arrears is returned to the tenant.