March 25, 2020

What the forfeiture moratorium is and is not

Empty retail unit

What the moratorium is…

All commercial leases contain ‘forfeiture’ provisions which allow a landlord to terminate a tenant’s lease where, most commonly, they have failed to pay rent, comply with the terms of their lease or have entered some form of insolvency proceedings.

Tenants are typically afforded 14-21 days under the terms of their lease to pay rent before a Landlord is permitted to take back possession of the business property. At that point, a Landlord can terminate a tenant’s lease, subject to a tenant’s right to relief from forfeiture.

The Government’s forfeiture moratorium, however, will prevent Landlord’s from relying on such clauses for the next three months where the tenant cannot pay their rent because of coronavirus. With most commercial rents being paid quarterly in advance, this means that tenants will have the benefit of knowing a landlord cannot bring their lease to an end until at least the next quarter day payment date of 24 June (the formal expiry of the moratorium being 30 June, or longer if extended by Government).

Unlike other measures which have been industry specific, the moratorium applies to all commercial tenants in England, Wales and Northern Ireland.

What it is not…

Many tenants will already have been holding negotiations with landlords, particularly after the announcement of public lockdown, to reach voluntary arrangements about rental payments. It is important for tenants to realise that the moratorium does not mean those discussions are no longer necessary.

The Government has expressly confirmed that the moratorium is not a rent holiday, nor an agreement to defer the payment of rent.  As things stand, the rent is still payable unless agreed otherwise with your landlord and, if tenants have still not paid the March or June quarters’ rent by the end of the moratorium, then they will remain exposed to having their lease terminated.

As mentioned above, non-payment of rent is only one strand of the basis upon which a Landlord can terminate a lease. If a tenant commits any breach of its lease other than non-payment of rent or is the subject of some form of insolvency action then Landlords retain the right to terminate leases.

It is also worth bearing in mind that, where the landlord and tenant have not agreed any form of rent concession, then interest will still be payable on any late payments in addition to the possibility of the landlord seeking to charge back its legal or other costs for the recovery of unpaid sums.

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