The new Coronavirus Act 2020: Uncharted waters for landlords and tenants

The new Coronavirus Act 2020 received Royal Assent on 25 March 2020. Its passing into law confirms a number of significant (albeit temporary) changes to the working relationship between landlords and tenants. This information sheet deals with the key changes that have been introduced by the legislation and some of the frequently asked questions that have arisen as landlords and tenants alike navigate their way through changing seas. Our Property Litigation team continues to advise landlords and tenants in all areas of property law and are on hand to guide you through this unpredictable time.

The new Act – key points for landlords and tenants

• The legislation imposes a moratorium of 3 months on forfeiture of commercial leases for non-payment of rent until 30 June 2020, but not for breaches of other tenant covenants (such as repairing obligations).
• All residential landlords now must give their tenants 3 months’ notice of their intention to seek possession, in any circumstance. The extended 3 month notice period will apply to all notices served up to and including 30 September 2020, but there is scope for the end date to be extended further if needed.
• Landlords can still serve notice upon their tenants, however, from 27 March 2020, all housing repossession cases – including those currently in the system – have been suspended for an initial period of 90 days (i.e. until 26 June 2020). In commercial cases, courts cannot order possession until the end of the moratorium period. It is therefore likely that there will be a significant backlog in cases once this period of flux is over, meaning new cases will take even longer to get through the courts.
• All landlord and tenant covenants remain unaffected. Tenants remain liable to pay their rent and Landlords remain obligated to ensure that the property meets the required standard of repair, etc.

New Practice Direction 51Z

Contrast the legislation with the new Practice Direction 51Z contained in the Civil Procedure Rules, which seems to go further than the provisions of the Act in affording protection from eviction to tenants. PD51Z imposes a stay of 90 days on all proceedings for possession and all enforcement action for a period of 90 days from 27 March – i.e. not just for non-payment of rent. This would seem to also extend to proceedings against trespassers, something which the Act does not do. It remains to be seen just how the courts will interpret the Act and PD51Z in practice, but, in reality, a landlord is going to need an exceptional reason to convince a court to agree to evict a tenant in the current climate.

Alternative remedies for landlords

There are no restrictions on landlords from using any of the other remedies that are available to them for non-payment of rent or breaches of other tenant covenants. A landlord still may consider taking the following action:

• Commercial Rent Arrears Recovery (CRAR)
• Injunctive relief
• Statutory demand for an undisputed debt
• A claim against a guarantor
• Deduction from the rent deposit, etc.

But it remains to be seen how the courts will react to a landlord’s efforts to circumvent the new legislation using alternative remedies. Landlords and tenants truly are in uncharted waters, and further clarity will inevitably be needed before the storm is out.

FAQs

I am a residential landlord

Q:My tenants have failed to pay their rent for this period. Can I serve a notice seeking possession?

A:Yes, you can serve a notice seeking possession of the property but the minimum notice period that you must give is 3 months before court action can be taken.

Q:I have already commenced possession proceedings against my tenant. I haven’t heard from the court – am I affected?

A:Yes, all proceedings currently in the court system have been automatically stayed for 90 days.

I am a residential tenant

Q:My landlord has served an enforcement order on me and intends to evict me next week. Can they do that?

A:No, the 90 day suspension also applies to enforcement orders that have already been granted. The landlord must now wait until at least 26 June before taking enforcement action.

Q:I cannot afford to pay my rent. Can I withhold it and will the new Act make me safe from eviction?

A:No. Your landlord can still serve you with notice to leave the property if you don’t pay your rent, but the notice period has been extended to 3 months for a temporary period. Tenants must continue to pay their rent and observe all other covenants in their tenancy agreement. If you are struggling to meet your obligations to pay rent, you should first speak to your landlord and consult the Government guidelines for tenants.

I am a commercial landlord

Q:My tenant has failed to pay their rent for this quarter, can I still forfeit the lease?

A:Yes, but forfeiture can only be effected after 30 June 2020.

Q:My property has been squatted by trespassers. Can I commence possession proceedings?

A:In principle, yes, because the Act does not extend to possession proceedings against trespassers. However, PD51Z appears to impose an even stricter stay on all proceedings, including those against trespassers. We await further clarification from the court.

I am a commercial tenant

Q:I cannot afford to pay my rent. Can I withhold it and will the new Act make me safe from eviction?

A:No. The new Act does not grant a rent holiday or deferment. Rents still have to be paid as usual. Your landlord can still take enforcement action for non-payment of rent but only after 30 June 2020.

Q:I cannot afford to pay my service charge and it is not reserved as rent in the lease. Can I withhold payment and will the new Act make me safe from eviction?

A:In the ordinary course of events a landlord can forfeit for non-payment of service charge, however, the new legislation stymies all forfeiture proceedings brought for non-payment of anysum the tenant is liable to pay under the business tenancy, which includes service charge, insurance etc. Again, this is not a holiday or a deferment and the landlord can still take enforcement action for non-payment of any sum, but only after 30 June 2020.

Further details and commentary will follow once the legislation has been framed and receives Royal Assent.

Originally published at Kermanco.com prior to the firm’s combination with Armstrong Teasdale in early 2021.