Commercial Landlord & Tenant: Legal Update
The relevant period was a measure brought in by the Coronavirus Act 2020 in order to protect tenants from eviction during the pandemic – but when will it end? And what happens when it does?
Many commercial landlords and tenants will be aware that, at present, tenants can fail to pay rent with relatively little immediate consequence. Rightly so, you might say, with the forcible closure of many businesses as a result of the current pandemic.
A key reason for this is that it is currently prohibited for a landlord to take any step to forfeit a business tenancy for failure to pay rent during what is known as the “relevant period”. Forfeiture – ending the lease and taking back possession of the property – is the primary remedy available to a landlord when their tenant doesn’t pay rent. Prohibiting this was an attempt to shield businesses from some of the immediate effects of enforced closure.
The relevant period is as opaque as it sounds. It currently ends on 30 June 2021, but this is a moveable feast with supposed previous end dates being 30 June 2020, 30 September 2020, 31 December 2020 and 31 March 2021.
Nonetheless, the important point is that it must end. Without commenting on the necessity for the prohibition in the first place, it isn’t sustainable to have such a curb on the primary remedy for non-payment of rent forever. If it were so then landlords throughout England and Wales might suffer significant, perhaps insolvency inducing, financial losses. The impact of this would be wider than just landlords though, with, for example, investment and pension funds holding commercial property investment positions suffering also.
So the question is, what will happen when the relevant period ends?
The End of the Relevant Period
It is possible that many landlords will simply forfeit immediately and attempt to re-let. On an individual basis, this might seem appealing. In a struggling commercial property market, if it were to happen en masse it might prove disastrous. Large numbers of tenants with no place of business to trade from, all facing claims for outstanding rent having already struggled to meaningfully trade for over a year, and a slew of empty commercial properties dumped onto the market at once with diminished ability to generate rent. All of this might lead to numerous landlord and tenant insolvencies.
If the tenant has a reasonable prospect of resuming trading, an alternative might be to consider partial rent forgiveness or to strike a deal with the tenant about staged rental payments. Many tenants genuinely in distress will be reliant on and perhaps deserving of such deal to continue trading. Some not so in need tenants might be holding out for one simply to try and obtain a windfall. Either way, risks abound.
On the tenant side, there might be a commercial imperative for a landlord to strike a deal. However, if the lease has the security of tenure under the Landlord and Tenant Act 1954 and the tenant can afford to pay the outstanding rent then they might want to think twice about holding out. If a landlord wants a property back or a tenant to leave, forfeiture is a handy way of circumventing the protection of the security of tenure without nearly so much fuss or expense. Relief from forfeiture might be obtained, but likely on the basis of payment of the arrears, plus the landlord’s legal costs for good measure.
On the landlord side, any negotiations which go beyond the end of the relevant period run the risk of losing the entitlement to forfeit by accidental waiver, meaning they would have to pursue a claim for damages instead and be stuck with the tenant in situ.
The end of the relevant period is coming, even if the can is kicked further down the road one more time. It will be particularly important for landlords and tenants to know whether they risk overplaying their hand.
How we can help
If you are a landlord or tenant requiring advice about the relevant period and what you should do when it comes to an end, please do get in contact with our specialist property solicitor, Tim Kirkconel, on 01223 431142 or Tim.Kirkconel@ashtonslegal.co.uk.
If you would like further information about the new regulations which apply to residential landlord and tenant matters, please click here.
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