Beyond the forfeiture moratorium: reinstating your lease
In this series of updates from our Real Estate lawyers, we provide guidance to both landlords and tenants on issues affecting commercial leases during the coronavirus outbreak. Please click here to read the latest guidance for commercial landlords.
So what happens after 30 June 2020?
If you haven't paid your rent, then once the forfeiture moratorium has been lifted – on 30 June or another date the Government may extend to – you will be at risk of having your lease terminated without warning.
In this blog, we look at the possible scenarios and steps you can take to hold on to your premises and keep your business going.
Forfeiture for non-payment of rent: a brief overview
Assuming that your lease includes the right to forfeit (and most leases do), your landlord is usually able to forfeit for non-payment of rent. Precisely when the landlord can do that will depend on the wording of the forfeiture clause. Typically, a commercial lease will allow a grace period of between 14 and 21 days after the rent has fallen due before the landlord has right to forfeit.
It is possible for a landlord to forfeit a lease by applying to court. However, most commonly landlords will forfeit for non-payment of rent by peaceable re-entry: meaning that your landlord will physically take back possession, change the locks and secure the premises without notice.
Obviously, for you as a tenant this would be hugely disruptive, leaving you without a place to trade from, and no immediate access to your possessions. In the current circumstances, after what may be a prolonged period of coronavirus lockdown, this may tip some tenant companies over the edge.
So, what are the options if this happens to you?
Relief from forfeiture: getting the lease reinstated
Once the forfeiture moratorium comes to an end, it's quite simple: if you haven't paid your rent, and your landlord decides to forfeit your lease for non-payment, your lease ends.
You then have two choices:
- accept the end of your lease, or
- apply for "relief from forfeiture" to have you lease reinstated as if it had never been terminated.
Relief from forfeiture is not something that you can simply agree with your landlord. Instead, you will need to make an application to court for consent.
Generally, you will have six months after the forfeiture to submit your application, although this can vary depending on the method of forfeiture and the court to which you are applying.
Is relief from forfeiture automatic upon application?
In short, no. Relief from forfeiture is what's known as 'an equitable remedy’', meaning that it is at the court's discretion whether or not to grant it.
Practically however, a court is likely to grant relief from forfeiture in non-payment of rent cases, if you pay all of your outstanding rent arrears, together with your landlord's costs. Provided you pay, it will only be in exceptional circumstances that the court will refuse to grant relief to reinstate the lease.
Commercial tenants: things to consider now
1. The moratorium is not a waiver of the landlord's right to forfeit. The legislation makes it clear that the suspension of the landlord's right to forfeit for non-payment of rent during the moratorium does not mean the landlord can’t forfeit for non-payment of that unpaid rent in the future.
Tip: if your landlord has agreed to waive their right to forfeit, make sure it is done expressly in writing.
2. The moratorium is also not a rent holiday. Your rent is still due in the normal way, unless you've reached an alternative agreement with your landlord.
Tip: you may consider rental concessions.
3. Act now. If you are concerned about your ability to pay the rent, do not wait until the end of the forfeiture moratorium. Take proactive steps to discuss rental concessions with your landlord now. It would likely be a lot more expensive to apply to court for relief from forfeiture than to engage with your landlord now to secure a protective rental concession.