Bishop & Sewell

It is the March Quarter Day 2020, the Coronavirus Bill has had its second reading in the House of Lords (there are still three further stages before reaching Royal Assent) however it would appear at this stage that the terms of Section 82 are likely to become legislation.

Section 82 will likely become one of the most heavily relied upon pieces of legislation within the Business Tenancy Landlord & Tenant Regime over the next few months, and therefore it is important that landlords and tenants alike understand what it means, so here are a few key points to consider:

  1. Section 82 applies to Relevant Business Tenancies which falls within Part 2 of the Landlord and Tenant Act 1954 (the 1954 act) (or would apply if the relevant occupier were the tenant) (section 82(12)).

Part 2 of the 1954 Act applies to tenancies:

Where the property…is or includes premises which are occupied by the tenant and are so occupied by the tenant are so occupied for the purposes of a business carried on by him…(section23(1)).

There are other conditions which are required to be satisfied such as a ‘controlling interest’ test in determining occupation (section 23(1A)), whether the business constitutes an excluded business (ss.43 – 43ZA) such as a ‘home business’, or whether the term was granted for a long enough period (s.43(3)).

Accordingly, tenants should not immediately presume that they are entitled to the Section 82 relief and protection.

  1. Section 82 will apply for the Relevant Period, meaning it begins on the day the Act is passed, and ending on 30 June 2020 (subject to any extension which may be exercised) (section 82(12)).

If your Rent Days follow the traditional Quarter Days, this will include the June Quarter Day.  The Coronavirus Bill is intended to be time limited for 2 years, therefore there is still plenty of scope to extend the Relevant Period.

  1. No right of re-entry or forfeiture, under a Relevant Business Tenancy, for non-payment of Rent, may be enforced during the Relevant Period (section 82(1)).

This is relatively clear, in that there is to be no right of re-entry or forfeiture for non-payment of Rent.  This does not however preclude the landlord from seeking to forfeit or re-enter for any other breach which may arise and provide them with that right.

  1. Rent is deemed to be inclu[sive] of any sum a tenant is liable to pay under a relevant business tenancy (section 82(12)).

There is a meandering course of caselaw on whether rent for forfeiture purposes is inclusive of sums ‘reserved as rent’.  The Government appear, in this instance, to have taken the argument away from courts and included all sums payable under the tenancy.

Nonetheless, tenants may want to be live to the fact that there are still costs which need to be maintained, such as the costs of insuring the building – if their landlord is unable to cover these costs and the building should fall down, this is in nobodies’ interest.  Tenants may therefore want to give consideration toward maintaining at least some payments to their landlord.

  1. That Rent is not being paid during the Relevant Period, is not a waiver by the Landlord to their rights of forfeiture or re-entry, unless expressly waived in writing (section 82(2)).

One of the most understated provisions with one of the furthest reaching consequences.  If a tenant breaches their lease, in some instances a landlord will be precluded from seeking forfeiture if they are deemed to have ‘waived their rights’ by recognising the on-going existence of the lease.

Here, the Government have stated that the Landlord retains their right to forfeit for the deferred Rent at the conclusion of the Relevant Period.  For example:

  • 1 July 2020 (end of Relevant Period)
  • Tenant has not paid Rent for March and June Quarter Days
  • No agreement as to repayment plan / period
  • Landlord forfeits
  1. Proceedings currently progressing in the High Court and County Court for possession; neither Court may make an Order determining possession prior to the end of the Relevant Period (ss. 82(3) – (8)). Any Order granting possession which currently expires during the Relevant Period is extended and treated as expiring at the end of the Relevant Period (ss.82(9) – (10)).

Again, this is limited to actions in relation to non-payment of Rent – this does not preclude the Landlord from forfeiture / re-entry for any other contractual right which may be available to them.

  1. The absence of a rent payment during the Relevant Period, cannot be used to establish persistent delay if seeking possession under s.30(1)(b) of the 1954 Act (section 82(11)).

It does what is says on the tin!

As is my convention, at the moment, I am disinclined to criticise the Government for the swift actions they are taking to assist in the maintaining the health of the economy, businesses or peoples of Britain.  However, there are clearly holes in the above which parties are expected to plug for themselves.

Landlords and tenants will want to ensure certainty of the terms they are agreeing, for example a tenant will want to know that the landlord will not immediately forfeit at the conclusion of the Relevant Period, but the landlord will want certainty that any agreed deferral has a conclusion point and a set payment plan.  The 70+ year old case of Central London Property Trust v High Trees House Ltd [1947] K.B 130 has never since seemed more pressingly relevant.

Faced with the unprepared, there will be both landlords and tenants willing to take advantage of this situation.  But where will the eventual detriment fall?  A tenant who simply says ‘I don’t have to pay’ may have forgotten these debts will eventually fall due, and they need to maintain the relationship with the landlord after the expiry of the Relevant Period.

Some landlords may prefer to have some form of income and therefore seek to agree a part payment of Rent (perhaps even sacrificing a proportion for a limited time) during the Relevant Period to maintain cashflow – particularly if they are intermediate landlords – but will want to return to the full sum at a determined stage.

Some tenants will want to consider whether they would like to look to surrender their leases at this stage to avoid insolvency at a later stage, and some landlords will be worried as to whether they will be able to recover the deferred Rent once the dust has settled at all.

Businesses now seemingly thrive on leasehold interests, and therefore it is fair to presume that there are very few companies out there who will not be considering relying on Section 82 over the next few months – the question will be whether they have considered the fine print and negotiated their terms with care, consideration and forethought.

Charles Jamieson is an experienced Legal Executive in the firm’s Dispute Resolution department handling Commercial, Property and Chancery Disputes.  Charles works alongside Andrew Kavanagh (Company Commercial), Karen Bright & Lee Stafford (Dispute Resolution), Senal Patel (Commercial Property) and Rhian Radia (Employment) in providing a full spectrum service to businesses seeking advice.

The above is accurate as at 25 March 2020, however until the Coronavirus Bill receives Royal Assent, the information above may be subject to change.

The content of this note should not be considered legal advice and each matter should be considered on a case by case basis.

Category: News | Date: 25th Mar 2020

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