Watkins Ward Group reviews latest COVID measure and announces a new dedicated team, dedicated in providing Coronavirus advice for landlords.
Commercial and residential tenants who miss rent payments due to the impact of the coronavirus pandemic are to be protected from eviction for at least six months.
The necessary legislation for England, Wales and Northern Ireland is included in the Coronavirus Act. In Scotland the necessary legislation is included in the Coronavirus (Scotland) Act.
As additional restrictions on movement and businesses are announced by the government in an attempt to control the spread of the outbreak, landlords may struggle with the impact on their buildings and rental income. Some of the potential issues for landlords of commercial properties in particular are set out below, but specific legal advice should be sought before any action is taken.
Can my tenant terminate their lease arguing that it has been frustrated?
It is unlikely that a tenant will be able to argue that the lease has been frustrated.
The bar for termination of a lease by ‘frustration’ is high: it applies where supervening events unprovided for in the lease significantly alter the parties’ obligations and bring the lease to an end. While the restrictions placed on the use of some premises because of the coronavirus pandemic might be considered a supervening event, it is unlikely that a temporary inability to occupy the premises would meet this test.
However, the terms of the lease and the length of the interruption to occupation may be relevant.
Where the tenant has a contractual break, the pandemic may make it more likely that the tenant exercises that break.
Can my tenant claim a reduction in rent if they are unable to use the premises?
Probably not. Very few leases contain a ‘force majeure’ clause which could allow either party to say that the obligations in the lease are suspended because of Covid-19.
In most leases the obligation to pay the rent is only suspended, or the amount of rent reduced, where there has been “damage” to or “destruction” of the premises by an insured risk or, in some cases, an uninsured risk. Covid-19 itself does not cause physical damage to or destruction of premises, so these provisions are unlikely to be engaged.
Turnover rents in retail leases will be significantly impacted where premises are forced to close.
As a landlord, you may decide to defer, reduce or entirely suspend the rent for a period to avoid tenant insolvency. Any decisions of this type must be documented very carefully.
If a lease was frustrated, as above, it is possible that any advance payments of rent would be repayable.
Can my tenant refuse to pay rent?
Probably not. Even if the tenant has a claim for breach of covenant, if, as is common, the lease says that rent is payable without deduction or set off, they should continue to pay the rent and then seek to recover damages for breach of covenant as a separate action.
Rent suspension provisions are unlikely to apply, but the wording of the lease should be checked.
Where there is no legal requirement for the building to be closed, consultation with the tenant in relation to any potential closure may help to minimise the risk of litigation in the future.
Do I have to act in good faith if the tenant asks for variations to the lease and rent to reflect coronavirus?
Not unless there is a specific provision in the lease, which would be unusual. However, there may be commercial or reputational reasons why you would want to engage with the tenants in respect of any request, particularly where necessary to avoid tenant insolvency.
Do I still have the same remedies against the tenant for breach of obligations that remain unchanged?
Significant changes have been made, or are in the course of being made, to landlords’ remedies during the Covid-19 pandemic. The following changes have been made to a landlord’s ability to end a lease and secure possession of premises.
Section 81 of the Act provides for similar protections from eviction – by extension of notice periods – for tenants of many types of residential property tenancies in England and Wales, including assured and assured shorthold tenancies. The notice period required for landlords to terminate many residential tenancies in Northern Ireland has been extended too under the 2020 Private Tenancies (Coronavirus Modifications) Act (Northern Ireland).
A new Practice Direction under the Civil Procedure Rules (PD 51Z) issued on 26 March and amended on 17 April 2020 provided for a stay for all possession proceedings in England and Wales for 90 days from 27 March until 25 June 2020. That period was initially extended until 23 August 2020 by a change to the Civil Procedure Rules themselves under the Civil Procedure (Amendment No. 2) (Coronavirus) Rules 2020; and has now been further extended until 20 September 2020 by a further amendment to the Civil Procedure Rules under the Civil Procedure (Amendment No. 5) (Coronavirus) Rules 2020.
The stay does not apply to possession proceedings for trespass against “persons unknown” or to applications for interim possession orders against trespassers, and does not prevent case management directions being agreed by the parties.
Practice Direction 55C (as amended, following the further extension of the stay) provides for the resumption of possession proceedings once the stay expires. If a landlord has a claim which was issued before 3 August 2020, the landlord must serve a ‘reactivation notice’ in order for the stayed claim to be listed or relisted. If there is already a trial date, the landlord must serve the reactivation notice no later than 42 days before the scheduled hearing date, otherwise the trial date will be vacated. There is no standard form for a reactivation notice, but it must be in writing and must contain certain prescribed information. If no reactivation notice has been served by 29 January 2021, the claim will be automatically stayed.
The practice direction also states that the usual provision that the initial hearing in possession claims should be within eight weeks of issue of the claim will not apply for the period between 20 September 2020 and 28 March 2021, implying there will be some delay in progressing these proceedings while the courts deal with the backlog of stayed claims. Reference should be made to the detailed provisions of the practice direction when proceedings are being reactivated.
Do I still have the other landlord remedies to recover sums due and unpaid under the lease?
It is important to note that the Coronavirus Act does not suspend the right to rent or other payments, only the right to forfeit the lease for non-payment until the moratorium ends. While the moratorium applies, landlords retain the right to charge interest on the arrears at a rate specified in the lease; to bring debt recovery proceedings against tenants; and to have recourse to parent company or other guarantors, rent deposits or other forms of security for payment. However, the following changes have been made, or are due to be made, which affect other landlords’ remedies.
Eviction of your tenant
The new law says that:
landlords who wish to start possession proceedings to evict a tenant who has an assured tenancy or assured shorthold tenancy must still first give their tenant notice under section 8 or section 21 of the Housing Act 1988. The notice informs the tenant of the landlord’s intention to bring possession proceedings in the future
For notices served under section 8 between the 26 March and the 30 September 2020 the notice must specify a notice period before commencing possession proceedings
For notices served under section 21 between the 26 March and the 30 September 2020 (that previously required less than three months’ notice of possession proceedings), the notice must now specify a period of three/six months.
The new legislation is complimented by a Court Practice Direction that stays (or puts on hold) possession proceedings for up to three months and applies to all claims for the possession of land, including agricultural, commercial, and mortgage actions.
The important point to note is that there are some exceptions, which include tenants who conduct, for example; anti-social behaviour. This is where Watkins Ward Group can assist, with actions such as covert surveillance and tenant investigation. it is important that a landlord can provide clear and concise evidence of such activity.