What is Forfeiture?
Forfeiture is a means for a landlord to determine a commercial lease upon the occurrence of specific events resulting from the actions/inactions of the tenant.
In standard leases, forfeiture is engaged when (after the period of 21 days has expired from the start of the specific event):
- the tenant does not comply with their covenants under a lease (e.g to pay rent; to keep the premises in repair); or
- a certain specific event occurs (as set out in the forfeiture clause in the lease) – usually in connection with the insolvency of, or financial events affecting, the tenant
If a landlord makes the decision to forfeit the lease, the lease will automatically terminate upon the act of forfeiture then effected by the landlord (normally by peaceable re-entry or by court order).
Timing is a crucial factor with forfeiture, as a landlord can inadvertently ‘waive’ their right to forfeit by their own actions. For example, knowledge of a breach committed by a tenant can waive the right of the landlord to forfeit if they have not acted upon this knowledge as soon as they have become aware of it. Courts have also extended this waiver to include actions of the employees of a landlord and even their agents.
Section 82 Coronavirus Act 2020 (“CA20”)
The coronavirus outbreak has caused the government to enact emergency legislation in order to provide a transitory period of partial assistance to commercial tenants.
Section 82 of the CA20 places a ‘moratorium’ on the ability of landlords to forfeit a commercial lease for non-payment of rent until 30th June 2020 (defined in Section 82 CA20 as the ‘relevant period’). This period is subject to extension, ostensibly to take into account the uncertain picture vis-à-vis the economy, and combatting the progress of the virus, over the coming months.
The new legislation applies to business tenancies that are covered by the Landlord and Tenant Act 1954 regardless of whether they are contracted out of the protections of that Act. The legislation provides that during the moratorium, rent includes ‘any sum’ that a tenant is liable to pay under a lease – including sums such as service charges and insurance rent.
The legislation also lays down measures to restrict Courts from granting possession orders to landlords under existing forfeiture applications currently going through the Courts until the expiry of the relevant period.
Limitations for Commercial Tenants
The legislation applies only where the tenant fails to pay rent when due at the expiry of the payment period as provided in the lease and not in any other circumstance.
Therefore, if a tenant is in breach of any other covenants in the lease or is subject to insolvency proceedings, the provisions of the CA20 do not provide protection and the landlord is free to seek forfeiture of the lease and re-enter the premises. Section 82 is not in place to release tenants from their obligations under a lease, it is intended to prevent their removal from a premises where the only breach of the terms of the lease is that rent has not been paid.
Moreover, the legislation does not count as a form of ‘rent holiday’ for the tenant. Any unpaid rent due to the landlord which is not paid during the relevant period will not restrict a landlord from engaging their right to forfeit the lease after the relevant period has expired. Commercial tenants should also recognise that unpaid rent is likely to attract interest at the rate specified in the lease, which will still be incurred and accumulate throughout the relevant period.
Landlords and tenants across the nation are negotiating arrangements under existing leases and contracts to try and preserve business continuity during a period of social and economic uncertainty.
Whilst the legislation ensures that tenants are protected from eviction due to non-payment of rent, it does not go as far as to providing tenants with a rent moratorium or even a reduction in rent payable under such leases over the coming months. Furthermore, CA20 does not suspend other enforcement measures available to a landlord for other outstanding breaches, or indeed any prospective breaches, under a commercial lease.
Both landlords and tenants should always seek specialist legal advice regarding contemplated or ongoing forfeiture proceedings to ensure that their rights and options in connection with the same are understood and properly represented. Sharpe Pritchard’s specialist team of Real Estate lawyers can assist and advise both landlords and tenants in connection with their existing commercial leases and the impact of measures brought in under the new legislation.
This article is for general awareness only and does not constitute legal or professional advice. Law and guidance relating to the COVID19 pandemic is continually being updated and the law may have changed since this page was first published. If you would like further advice and assistance in relation to any issues raised, please contact us today by telephone or email firstname.lastname@example.org.