Act introduces protection for business tenants

The Coronavirus Act 2020 has introduced protections for business tenants in Northern Ireland who are struggling to cover rent charges on their commercial leases due to the Covid-19 outbreak.

The lockdown introduced by government on 23 March 2020 to slow the spread of the virus in the United Kingdom has seen the majority of ‘non-essential’ businesses being forced to close. This brings uncertainty, financial instability and pressure for business owners across the country.  

Section 83 of the Act outlines that commercial landlords in Northern Ireland cannot re-enter property under forfeiture provisions due to non-payment of rent for this quarter. This means that if a tenant has not paid rent, or cannot pay rent, the landlord does not have any right to forfeit the lease from 26 March 2020 to 30 June 2020 and this period can be extended by government if required. While this is a welcome protection for tenants, this will place many commercial landlords in a difficult position. But of course the measure does not relieve tenants from their liability to pay rent, it merely prohibits the exercise of one particular remedy that would otherwise be open to landlords.

This protection is afforded to all tenants, and they do not have to prove that rent arrears have been caused by the Coronavirus. If a tenant’s inability to pay rent occurred before the coronavirus outbreak, the landlord is still not entitled to forfeit the lease until after the defined period. This could lead to tenants taking advantage of the status quo and refusing to pay rent in the knowledge that they cannot be dispossessed of the property and will in all likelihood be afforded the opportunity of paying off the accumulated rent at the end of the moratorium.

Luckily for Landlords, the Coronavirus Act protects them from accidentally waiving entirely their right to forfeit after the moratorium – a trap which would otherwise be wide open to landlords. The Act provides that the right to forfeiture can only be waived by an express declaration of waiver in writing – and that is something no properly-advised landlord would ever willingly do.

Interim options for landlords

Landlords struggling to meet debts should consider:

• contacting lenders as soon as possible to discuss delaying or extending payment terms on commercial borrowings;
• utilising rent deposit sums (but only if the tenant is in default);
• approaching any guarantors under the lease;
• reaching concession arrangements allowing for interim payments;
• an extension in the lease to attempt to recover some rent during this period

Interim options for tenants

Tenants worried about financial obligations could ask their landlord to consider:

• a ‘rent holiday’ (with an express agreement that this does not affect the tenant’s right to exercise any break options in the lease); or
• reducing or deferring rent by, for example, spreading the 1 May quarter over a longer period to ease the burden.

With the above in mind, it is to be hoped that landlords and tenants will communicate with one another as soon as possible and be open to negotiations to facilitate repayments in such a way that sees both sides emerge financially intact from the current unprecedented times.

Graham Pierce is a partner in the Commercial Department of Worthingtons Solicitors specialising in Commercial Property. For more advice on your commercial lease, please do not hesitate to contact us on 028 90 434015 or [email protected].