Forfeiture moratorium on commercial leases: a brief guide for tenants

Last week, as part of the emergency Coronavirus Bill, the Government announced a three month ‘forfeiture moratorium’ on commercial leases. This means a ban on evictions of commercial tenants until at least the next quarter day (25th June) should they fail to pay rent due to the Coronavirus.

This moratorium officially runs until 30th June but may be extended should the Government feel necessary. It applies to all commercial tenants in England, Wales and Northern Ireland.

Under normal circumstances, a landlord is commonly entitled to terminate a lease and take back the business premises if a tenant fails to pay rent (subject to any grace period), breaches the terms of their lease, or enters into insolvency proceedings. This is of course subject to any right to relief of forfeiture the tenant might have.

As we recommended in our earlier note ‘Commercial Leases and Covid-19’, now really is the time to be having up-front, transparent conversations with your landlord about payment of rent moving forward. We have already had a lot of positive feedback as a result of tenants having these open discussions. This moratorium, while great as a short term ‘relief’, is not a permanent solution and so we encourage these discussions to continue regardless.

It is also worth bearing in mind a few other points in relation to this moratorium:

  • This should not be a first option for tenants. It is not a waiver of rent but instead a safety net aimed to keep the lease in place should rental payments not be possible or significantly delayed. The tenant is still liable for rents and so, once the moratorium is over, any unpaid rents throughout the period will remain due in full and still leave tenants exposed to forfeiture. If this really is the only option for a tenant, they should discuss with their landlord as to how the backlog of rent will be dealt with once the moratorium expires. Tenants should bear in mind, however, that only an express waiver in writing will be regarded as waiving the right for the landlord to forfeit after 30 June 2020.
  • Forfeiture is prevented but it does not prevent any other recovery methods for unpaid sums under the lease, for example, utilising rent deposit sums or exercising Commercial Rent Arrears Recovery.
  • If no other agreement has been reached between the landlord and the tenant and rent remains unpaid, interest for late payment will still accrue on those amounts.
  • The forfeiture provision in the lease still remains in force with respect to anything other than non-payment of rents e.g. breach of covenant, insolvency, etc. and so the landlord may still have the right to terminate if that provision is otherwise triggered.

With the above in mind, we still believe the best route forward is communication and negotiation. Landlords are no doubt struggling with their balance sheets as well, so it seems sensible that either agreed rental concessions or alternative payment timetables would be welcomed on both sides right now to forecast even a small glimmer of certainty.