The past year has been incredibly difficult for businesses with many having to close temporarily or permanently due to lockdown restrictions and many landlords have found themselves without an income as a result.
The Coronavirus Act 2020 which came into force on 26 March 2020 was passed as an emergency measure in response to the spread of the 2019 Covid-19. The Act contains protections for business tenancies that restrict the landlord's ability to forfeit a lease during the relevant period for non-payment of rent. The relevant period began on 26 March 2020 and was due to end on 30 June 2020, but regulations have been made which have extended this period to 31 March 2021 in both England and Wales. Proceedings for possession of properties have also been put on hold so what are the options for commercial landlords?
Where the tenant is failing to pay the rent and other sums due under a lease, there are a number of possible remedies the landlord can pursue to remedy the breach and recover payment. The landlord must assess what the most appropriate remedy is in the circumstances.
If the tenant needs time to pay the arrears, the landlord may want to consider entering into a payment agreement with the tenant requiring the tenant to pay the arrears in specified instalments. The payment agreement must be carefully drafted and the landlord should consider the following points:
- A clear distinction between payment of arrears under the payment agreement and continued payment of the rent under the lease.
- Termination provisions and full payment of any outstanding arrears if:
- either party disposes of its interest in the lease: or
- there is any default by the tenant in meeting the payment agreement deadlines.
- Tying the payment agreement to the lease so that default under the agreement will trigger a further right to forfeit the lease.
There are many advantages of entering into a payment agreement. Importantly it preserves the relationship between the landlord and the tenant and gives the tenant time to resolve their financial difficulties without the worry of the landlord taking more drastic action. A fair agreement to both parties will achieve full repayment of arrears and a continued positive working relationship between the parties. If the tenant is generally solvent and the arrears were an isolated incident, this may be a sensible way to proceed. However, it could also delay the inevitable of pursuing other methods of recovering the money and, if not correctly drafted, compromise the right to pursue these arrears.