Covid-19: Government provisions to protect Tenants and Landlords
The coronavirus outbreak is already having a significant impact on businesses both large and small, with the knock-on effects resulting in many businesses and individuals struggling to meet their obligations under rental agreements. The government has made several announcements over the past weeks setting out provisions to protect both landlords and tenants. Some of these are included in the Coronavirus Act 2020, which was passed on 25 March 2020 and which applies to England and Wales.
- Landlords serving notices to quit on residential tenants must allow notice period of at least three months
- Landlords of commercial tenants cannot exercise their right of re-entry or forfeiture for non-payment of rent for at least three months
- ‘Mortgage holidays’ are extended to buy-to-let mortgages
- All parties are encouraged to work together to find workable solutions
Protection from eviction
For residential tenancies, the emergency legislation extends the periods of notice for eviction and possession to at least three months. The legislation applies from 26 March 2020 until 30 September 2020, with provisions to extend this period if necessary. The temporary restrictions cover residential tenancies, including Assured Shorthold Tenancies, and apply to eviction for any reason, including missed rent payments.
It is important to note that tenants are still obliged to pay their rent under their tenancy agreement, as the legislation simply prevents a landlord from starting eviction proceedings for at least three months after notice to quit is served.
Protection from forfeiture
Measures to protect tenants were initially announced in relation to private and social accommodation, but have now also been extended to commercial tenants who miss rent payments. “Rent” is broadly drafted to include other sums due under the lease such as service charge and other outgoings.
The restrictions on re-entry or forfeiture under business tenancies apply during the period between 26 March 2020 and 30 June 2020 (the “relevant period”), which can be extended by law if necessary. During this period, and potentially for a further period if the government chooses to extend it, landlords cannot use their usual right of re-entry of forfeiture due to non-payment of rent, but the right to forfeit itself is only to be waived by express agreement in the meantime.
In addition, any court order requiring possession of a property made as a result of proceedings that were initiated before the relevant period may not specify a date of expiry before the end of the relevant period. Further, a tenant who is subject to a court order for possession which has already been made, and which specifies a date for possession before 30 June 2020, can apply to vary the order to postpone the date for possession until after the end of the relevant period.
A failure to pay rent during the relevant period is not to be treated as a persistent delay in paying rent where a landlord seeks to oppose the renewal of a business tenancy on this ground under the Landlord and Tenant Act 1954. The 2020 Act does not prevent forfeiture on other grounds, or debt claims, drawing down on rent deposits, guarantor claims, statutory demands or Commercial Rent Arrears Recovery (CRAR). Commercial licences are not protected by the Act.
The government also announced that the three month ‘mortgage payment holidays’ for homeowners will also now apply to landlords who hold a Buy-to-Let mortgage and whose tenants are struggling to meet their rent obligations due to coronavirus. It is hoped that this will alleviate the pressure on landlords who are concerned about meeting their own mortgage payments, and in turn avoid unnecessary pressure being put on their tenants.
These provisions allow for a pause on mortgage payments rather than an extension to the payment period. The money that would have been paid back during the ‘holiday’ period is spread over the remaining payment period, meaning that a borrower would see an increase in the amount of their remaining monthly payments.
Though the above provisions may provide some relief for both tenants and landlords, they may result in complex situations where parties’ obligations going forward are not altogether clear. The government has, therefore, encouraged landlords and tenants to work together during this unprecedented time of disruption to establish affordable repayment plans, with landlords in particular being asked to endeavour to understand the financial position of their tenants and show compassion to allow tenants to remain in their homes where possible.
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.