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Coronavirus – Education: moratorium on forfeiture – UK

  • United Kingdom
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Many educational institutions have granted business tenancies to third parties who occupy part of their estate and many institutions also occupy third party premises as business tenants. In light of the ongoing Covid-19 situation, the Government has enacted emergency legislation to provide business tenants extra protection from forfeiture.

What is the government doing?

The government is giving business tenants temporary protection from forfeiture for non-payment of “rents” (“the Moratorium”). The Moratorium will last from the day after the Coronavirus Act comes into force until 30th June 2020, or any later date (or dates) the government specifies. Given the current lockdown, it is probable the government will extend the Moratorium at least once.

What does the Moratorium cover?

The Moratorium on forfeiture only applies to non-payment of “rents”. The Act defines “rents” very widely as “any sum a tenant is liable to pay under the relevant business tenancy”. The safest view is that the Moratorium applies to the non-payment of any sums under a business lease, whether or not they are reserved as rent.

Which tenants are protected?

Broadly all tenants (and occupiers) of business premises. The definition of business premises is the same as that used in the 1954 Act and the definition under the 1954 Act is extremely wide, so the Moratorium will capture the vast majority of commercial tenancies.

What can’t a landlord do during the Moratorium?

During the Moratorium, the landlord will not be able to enforce any right of forfeiture or re-entry by court action or otherwise. In other words the moratorium prevents a landlord of commercial premises bringing the lease to an end by re-entering and changing the locks. Forfeiture actions already begun can continue, but if an order for forfeiture and possession is made it cannot be enforced until the Moratorium ends.

The Moratorium does not however take away a landlord’s right to forfeit. It just suspends it during the Moratorium. Indeed, the Act expressly preserves the landlord’s right to forfeit. It says that nothing the landlord does, except an express waiver in writing is “to be regarded as waiving the right of re-entry or forfeiture for non-payment of rent.”

If premises are closed, the landlord should not enter them to exercise CRAR- the Commercial Rent Arrears Recovery regime which would otherwise entitled landlords to seize goods to the value of the arrears. Technically nothing in the Government’s announcement prevents landlords continuing to enforce arrears by exercising rights under CRAR but the difficulty, if the premises are closed, is that doing so could be construed as forfeiture and so breach this legislation.

Finally if a landlord is seeking to oppose the grant of a new tenancy (under the Landlord and Tenant Act 1954) on grounds of persistent non-payment of rent, it will not be able to use any failure to pay rent during the Moratorium in evidence against the tenant.

What can a landlord do during the Moratorium?

Apart from forfeiture for non-payment of monies, the Moratorium does not affect a landlord’s remaining remedies. For example:

• sue for non-payment of principal rent or of any other sum;

• serve a statutory demand in relation to non-payment of any principal rent or of any other sums;

• begin and enforce forfeiture action for breach of any covenant which does not relate to the payment of money; and

• demand any rents.

During the Moratorium, all principal rent and other sums remain fully due, demandable and payable. Interest on them also continues to accrue. The Moratorium does not affect any of the landlord’s other rights and remedies. The Moratorium is purely a temporary postponement of the landlord’s right to take forfeiture action for non-payment of sums payable under business tenancies.

Given that COVID-19 poses an unprecedented threat to the whole real estate market, it is unlikely that many landlords were planning to take early forfeiture action purely for non-payment of monies anyway.

Put simply the Moratorium is not a payment holiday and rents will still fall due. Institutions should therefore continue to ensure they are forward planning for making and receiving payments. We recommend that institutions work closely and remain in dialogue with their landlords or tenants where they are not able to make rental payments due to the current situation and carefully monitor the end date for the Moratorium.