Commercial lease forfeiture moratorium

Is Forfeiture of Commercial Leases still an option in light of the extended moratorium?

The Government recently announced that the moratorium on forfeiture of commercial leases for non-payment of rent has been extended from 30 September 2020 to 31 December 2020.

We first saw the introduction of the forfeiture moratorium in March 2020, when the measure formed part of the emergency Coronavirus Act 2020.  It was initially anticipated to be a short-term emergency measure with an end date of 30 June 2020. However, it has now been extended twice and the protection is now to last at least until 31 December 2020.

The further extension will continue to provide tenants with certainty that they will not be at risk of forfeiture for non-payment of rent, but Landlords are still entitled to issue debt proceedings for arrears owed to them.  It is also worth noting that whilst Landlords are unable to forfeit leases for non-payment of rent, they are not precluded from forfeiting the lease on other grounds, providing that the lease permits the landlord to forfeit on grounds other than rent arrears. Ordinarily, the lease will provide that the landlord is entitled to forfeit the lease if the tenant is in breach of any covenants contained within the lease. In such circumstances the landlord will first be required to serve a notice on the tenant pursuant to section 146 of the Law of Property Act 1925.

A Section 146 Notice is ultimately served by a landlord who wishes forfeit a lease following a breach of one or more covenants. This notice must:

  1. specify the breaches complained of,
  2. importantly if the breach is capable of remedy, require the tenant to remedy the breach by a particular date or within a reasonable time, and
  3. in any case require the tenant to pay compensation in money for the breach.

The tenant is afforded a reasonable time to remedy the breach if it is capable of remedy following service of the section 146 notice. If the breaches are not remedied within a reasonable time then the landlord is able to forfeit the lease and peaceably re-enter.

In the event peaceable re-entry is not possible then court proceedings will have to follow. However, forfeiture or court proceedings cannot be started unless the tenant fails within a reasonable time to remedy the breach, if it is capable of remedy, and to make reasonable compensation in money for the breach, to the satisfaction of the landlord.

The most common tenant covenants which tenants breach are for disrepair, including failing to decorate or redecorate the internal or external of the property in accordance with the lease.

It is also worth noting that the Government has also extended the current revisions to the rules for landlords using Commercial Rents Arrears Recovery (ie appointing bailiffs to seize a tenant's goods) to enforce unpaid rent on commercial leases until 31 December 2020. The remedy remains available for use, but instead of being available after seven days' rent have accrued, 276 days' rent must now be in arrears. For notices of enforcement given after 25 December 2020, this will rise to 366 days' rent.

If you would like advice on forfeiture or the service of a Section 146 Notice then please get in contact with Josh Millichamp at Talbots Law or call our team on 0800 118 1500 to find out how we can help you..