Overview
For additional guidance, please refer to Steptoe's COVID-19 Resource Center.
Insurance
Insurance issues which are relevant to real estate such as business interruption are covered in this alert. Landlords and tenants should also remember to liaise with buildings insurers and ensure they comply with any endorsements or policy terms relating to unoccupied property if their premises are vacant during the lockdown or due to staff absence.
Moratorium on Forfeiture
We are handling client instructions associated with the impact of the government moratorium on forfeiture of business leases for non-payment of rent under section 82 of the Coronavirus Act 2020. Rent for these purposes means any financial payments due under the lease. It is important to understand a landlord can still forfeit a lease for breach of a non-financial obligation. The moratorium currently runs between March 26, 2020 to June 30, 2020 and there is much discussion as to what will happen when it expires and whether there will be further government intervention.
The moratorium simply provides a grace period for payment of rents by preventing forfeiture, it does not change any other remedy available to a landlord and all sums remain due. It does not matter when the arrears fell due. It applies to possession proceedings which precede the moratorium too – a court cannot grant an order for possession before June 30, 2020. Changes to the Civil Procedure Rules have been brought into effect (CPR Practice Direction 51Z) effectively staying possession proceedings by 90 days.
Rent Negotiation
While the landlord and tenant relationship is under strain, we are seeing varied levels of dialogue between the parties in the context of potential rent freeze, rent free, suspension, and deferment. Differences emerge based on the underlying financial strength of the parties, the use of the property (food and beverage, hospitality, and leisure coming under particular pressure) and their respective debt positions. There is evidence of a sense of ‘wait and see’ in the market given the scope for further legislation.
Lease Renewal
Some clients have contacted us concerned about the impact on lease renewal of not paying their rent during the crisis (noting that in the context of renewal of a protected business lease a landlord can seek to refuse to grant a new lease by invoking section 30(1)(b) Landlord and Tenant Act 1954 – because of the tenant’s persistent delay in paying rent that has become due). Section 82(11) of the Coronavirus Act 2020 specifically addresses this and states that any failure to pay rent under the tenancy between March 25, 2020 and June 30, 2020 (whether the rent fell due before or in that period) is to be disregarded. This statutory grace period could be extended by further provision.
Contracts
Parties are seeking to co-operate to add or vary clauses in contracts to address delays caused by COVID-19 and agree an acceptable path to completion of their obligations.
Frustration
Some client concerns have focused on frustration of contracts and how to interpret force majeure terms. Please refer to our alert on English law contracts – force majeure, frustration and other relief as these principles are not limited to real estate. Particular concern for real estate transactions arise when time becomes of the essence and a party risks losing a deposit by being unable (it possibly being considered impossible) to complete the contract for reasons associated with lockdown or finance becoming unavailable, although we note (for example) measures are under discussion with UK Finance for extensions to mortgage offers and the commercial market may prove similar.
