Forfeiture of Commercial Property – Look Before You Change the Locks
One of the biggest problems that our commercial landlord clients are facing in these unprecedented times of the Coronavirus pandemic and economic hardship is, unsurprisingly, their tenants not paying the
It is really important that if you are a commercial landlord, even in normal times, you do not follow the knee-jerk response to go in and try and change the locks. If you do, you could be in for a hefty bill and maybe even the risk of criminal prosecution.
This position has been exacerbated by Section 82 of the Coronavirus Act 2020, so that you cannot forfeit the lease for non-payment of rent, this was initially up to and including 31 March 2021, but on 9 March 2021 was further extended to be up to and including 30 June 2021.
This is a serious situation for many landlords as most of them throughout this time, even if they are able to get a mortgage holiday, are just accumulating debt and not being paid their rent. However, your options are now very much limited by the fact you cannot forfeit the Lease until at the earliest 1 July 2021 and we will again need to await hearing whether or not this date will be further extended or not. If you were to forfeit, you would end up at risk of an extremely expensive claim against you for illegal forfeiture and in all likelihood paying the Tenant’s legal costs as well.
The other usual way that Landlords can exert pressure and get paid by tenants is through insolvency proceedings, but again the options have been curtailed by the Corporate Insolvency and Governance Act 2020, that in a nutshell, means you cannot serve a Statutory Demand unless you can demonstrate that the reason for the Rent Arrears was not Coronavirus related. It would appear to be difficult in usual circumstances for you as a landlord to show that your tenant’s business was not impacted by the Coronavirus negatively. This only applies to Companies.
The remaining realistic option is to bring a claim for Rent Arrears and your costs in the courts. However it is only worth doing this where you are holding a significant Rent Deposit or have a tenant who has the funds or assets to satisfy any judgment.
In summary, there is no doubt that Covid has shifted the goalposts in terms of the detail and timescale and you will be in real trouble if you try to change the locks. However, the approach that we would always advise our commercial landlords to take is to carefully review the Lease and the circumstances of the case, before taking firm and proactive action against the Tenant, as this is always the way to avoid major costs and headache later on.