The Government has recognised the COVID-19 pandemic as a “significant challenge for the entire world” and has now taken decisive statutory action, enacting the Coronavirus Act 2020 (“the Act”).
Of particular interest to those in the landlord and tenant sector are sections 81 – 82 of the Act which cover both residential and commercial tenancies and apply to both England and Wales. This note summarises the key takeaways from the Act and the likely effects on both landlords and tenants.
Section 81 of the Act makes various amendments to the Rent Act 1977, Protection from Eviction Act 1977, Housing Act 1985, Housing Act 1988 and Housing Act 1996.
The effect of the amendment is that the time period that a landlord must give to its tenant in any of the relevant statutory notices served in line with these Acts as a precursor to possession proceedings has now been increased to three months. There is scope for this period to be extended up to a maximum of six months by the Secretary of State. The amendment is time limited, only having effect until 30 September 2020, although official Government guidance has already indicated that this is subject to review and may be extended by secondary legislation.
In alignment with section 81 of the Act, the Master of the Rolls has issued Practice Direction 51Z, which suspends all possession proceedings under Part 55 of the Civil Procedure Rules from 27 March 2020 for a period of 90 days. This means that any ongoing litigation with the Court where a landlord was seeking possession of a property (as well as any proceedings seeking to enforce an order for possession already obtained) are now stayed. As with section 81 of the Act, PD 51Z is time limited, only having effect until 30 October 2020.
In further official guidance published over the weekend, the Government “strongly advise” against landlords continuing with present claims or commencing new action seeking possession during the pandemic “without a very good reason”. Unfortunately, the Government stop short at outlining what constitutes “a very good reason”.
In these unprecedented times, landlords should take steps to communicate with tenants who may find it difficult to meet their ongoing obligations. As possession proceedings are effectively suspended during this period, it would be prudent to have sensible conversations with tenants as regards the payment of rent. As an example it may be possible to agree to longer term payment plans to assist were possible.
The same applies to tenants; if you are suffering financial hardship due to the current COVID-19 pandemic, actively engage with your landlord to see if there is a way to come to a mutually beneficial agreement during these tough times. Burying your head in the sand and allowing rent arrears to accrue will only leave you exposed to enforcement action further down the line.
Section 82 of the Act deals with commercial tenancies; the Act confirmed that this section applies to any tenancy which has security of tenure for the purposes of the Landlord and Tenant Act 1954, or would have such protection if it had not been contracted-out.
The key headline is that a landlord cannot exercise a right of re-entry or forfeiture for non-payment of rent from 27 March 2020 until 30 June 2020, referred to in the Act as the “Relevant Period”. As for any ongoing litigation based on forfeiture for rent arrears, the tenant cannot be evicted until the end of the Relevant Period. Again, as with the provisions affecting the residential sector, the Secretary of State has the power to extend the Relevant Period.
This will provide relief for commercial tenants whose businesses have been forced to close following the strict restrictions imposed by Government on “non-essential businesses”, resulting in cash flow halting almost overnight in some cases.
It is important to note that the suspension of the right to forfeit does not create a rental holiday for commercial tenants; any rent which falls due in the Relevant Period will still payable by the commercial tenants. However, the likely effect of the provisions will result in a rent deferment in many instances as landlords have lost their key weapon for enforcing non-payment of rent.
Another piece of good news for landlords is that the Act makes it clear that no conduct by or on behalf of a landlord during the Relevant Period is to be regarded as waiving the right to forfeit for non-payment of rent (unless specifically waived in writing). This will preserve the landlord’s right to instigate forfeiture proceedings once the Relevant Period has come to an end.
The commentary above regarding parties communicating is equally as applicable to commercial tenancies. There is considerable merit in considering conversations in which the parties can discuss options, including:-
accepting monthly payments instead of quarterly payments;
offer a rent deferment (e.g. the March quarter’s rent becomes payable at the same time as the June quarter);
offer a rent discount (e.g. reduce to a concessionary level for one or more payment periods); and
offer a rent free period.
The above proposals will certainly ease the short-term financial pressure on commercial tenants. Even if no formal agreement is in place, it would certainly be wise for tenants to pay what they can towards the rent to ensure that any arrears that build over the next few months do not become unmanageable (leaving the tenant exposed to forfeiture action once the Relevant Period expires).
From a landlords’ perspective, they will have to carefully consider how they are to implement any agreements between the parties; any side letters must be carefully drafted so they accurately reflect the terms agreed and executed correctly so they can be relied upon.
In the current economic climate, the reality is that both parties are likely to suffer financially in the short-term. Having early conversations could help mitigate losses and build solid relationships between landlord and tenant, which will survive the COVID-19 pandemic and result in long-term connections that ultimately prove prosperous for both landlord and tenant.
31 March 2020