The law surrounding Forfeiture in commercial tenanciesOct 21, 2020
As the Pandemic continues to evolve, so does the law surrounding commercial tenancies. As you already know, there’s a lot of uncertainty throughout the country. But one thing commercial tenants can be certain of is that a landlord’s right to exercise their right of re-entry (forfeiture) for non-payment of rent is suspended until 31 December 2020.
What options do landlords have?
Landlords are currently unable to exercise their right to forfeiture for non-payment of rent. However, they are free to use debt recovery methods in order to recover the arrears. There are a number of options available, including serving a statutory demand. This can only be done, where the rent arrears for a company is in excess of £750.00. For an individual, more than £5,000.00 should be owed. This is a formal demand for an undisputed debt and is often the first stage in beginning insolvency proceedings. However, the Corporate Insolvency and Governance Act 2020 restricts the presentation of a ‘debt based winding up petition‘ until 31 December 2020. And only where a company cannot pay due to the pandemic. The onus here is on the landlord to provide evidence that the tenant cannot meet the statutory demand because of Covid-19.
Another option for the landlord is to proceedings to the County Court. However, in light of the Pandemic, further protective measures have been introduced. These must be considered before embarking on any debt recovery measures. If you need help, we’re happy to talk to you about this.
Responsibilities of the tenant
Commercial tenants should be aware that a lease containing a forfeiture provision often allows the landlord to forfeit the tenancy for a number of other reasons. If a tenant is in breach of any of its obligations under the lease, this option can be used. A good example here, is a failure to fulfil repairing obligations.
Where the tenant has breached one of its obligations under the lease (except for non-payment of rent) the landlord is required to serve a separate notice. This is a notice that confirms the breach complained of and the landlord’s intention to forfeit the lease. The tenant is afforded time to correct the breach, if it is capable of being corrected.
The landlord could end the lease if the tenant fails to correct the breach in the time specified. Forfeiture can be exercised by peaceable re-entry, (i.e. entering the property and changing the locks). Or a landlord could obtain a court order through possession proceedings (if repossession is resisted). We’d strongly recommend landlords to carefully consider whether the lease can be ended through peaceable re-entry. It’s also worth bearing in mind whether the tenant is likely to apply for relief. More often than not a possession order from the court will be the safest option but it is case specific.
Up until 30 September 2020 all possession proceedings were stayed, including those relating to residential properties. After this date all existing and new possession proceedings will be subject to additional procedures up until 31 March 202. We wouldn’t however be surprised if this period may was extended.
How we can help
At the best of times the world of forfeiture and/or possession is complex and difficult to navigate. With the added pressure of the pandemic and the related provisions it is harder than ever. Here at Nash & Co we have experience in advising both landlords and tenants. Our Commercial Dispute Resolution team are able to assist you with either side of the process.