As discussed in previous articles from Joe Marley of our Commercial Real Estate team ( view here) the Coronavirus Act 2020 introduced protection for tenants unable to pay their rent due to the impact of COVID-19. No business will be forced out of their premises during the relevant period for non-payment of rent. The relevant period has recently been extended until the end of 2020 and therefore Landlords will not be able to forfeit a lease for non-payment of rent this year. Powers remain available in the Act for further extensions of this date.
Landlord's options
Some landlords are concerned that their tenants are refusing to pay rent even in circumstances where they have sufficient capital and have continued to trade from the premises. Many tenants have also refused to engage with landlords at all to negotiate a suitable rent deferment or other fair compromise. Others have defaulted on such agreements leaving landlords with limited ability to enforce them.
For some smaller landlords with their own financial commitments, the extension to the relief period could be very unwelcome news and potentially mean that existing rental voids are prolonged even further.
Given the temporary halt to the use of statutory demands for rent recovery and winding up petitions, which has also been extended to the end of 2020, landlords only option to pursue arrears is through the Courts. This is considered a costly and time intensive option in normal circumstances but remains even more burdensome in present circumstances. With no ability to commence winding up proceedings to enforce any judgment, the option may also lack any real teeth.
Many tenants could well find they have a huge rental bill to pay, or face eviction when the current measures come to an end. This begs the question then as to whether we will begin to see a tranche of cases coming before our Courts for relief from forfeiture when the measures are eventually lifted.
Relief from Forfeiture
A tenant can attempt to claim relief against forfeiture by issuing emergency injunctive proceedings at the High Court in Belfast. If the tenant chooses to pay the arrears which remain outstanding it is very likely that relief will be granted by the Court. If a tenant successfully claims relief against forfeiture the landlord will not only be responsible for its own legal costs but those of the Tenant. A tenant may also be able to claim damages by way of any damage caused to the property as a result of re-entry or loss of trade.
The recent English case of Keshwala and another v Bhalsod and another [2020] EWHC 2372 (QB) reiterated that an act of re-entry is to be treated as no more than security for the payment of rent. Therefore, if rent is paid (or tendered) relief should follow unless there is some "exceptional reason" why it would be unjust to grant relief.
Some Judges may be more willing to grant relief where the tenant can show the breach(es) can be linked to factors arising from the pandemic and from previous lockdowns. A Landlord will therefore likely undertake a risk-analysis exercise to see if tenants could feasibly afford to seek relief if the landlord were to exercise their re-entry rights. That may then allow them to make an informed decision taking into account the likelihood of filling any rental void with another tenant in the current circumstances which could cause difficulty for landlords.
Recent case law on relief from forfeiture
We are likely to see a raft of new case law arising from forfeiture/relief from forfeiture provisions touching on issues arising in the context of the pandemic and lockdown measures. These cases will most likely touch upon whether the arrears in question have arisen as a result of the Covid-19 measures put in place by the government and potentially, breaches of "keep open" clauses could also be considered. I have set out below commentary on a recent English case dealing with keep open provisions and a recent NSW case which also deals with keep open provisions and the effects of the restrictions before lockdown was actually put in place. Whilst these cases do not apply in NI, they could be persuasive and give some insight into recent judicial thinking on relevant issues.
SHB Realisations Ltd v Cribbs Mall Nominee (1) Ltd (2019)
This English case explored the use and limitations of a keep open clause in enforcing the forfeiture of a commercial lease. Tenants are normally given legal relief from forfeiture of their lease unless they materially break the terms of their agreement.
In this case, the lease included a keep open clause which was breached when the tenant closed the store in August 2016. The landlord subsequently issued forfeiture proceedings and the tenant (via its appointed insolvency practitioners) sought relief from forfeiture as they planned to find an assignee within 6 months. The court granted relief from forfeiture on the condition that the tenant complete an assignment of the lease within 3 months and that ongoing sums under the lease were paid.
The case established that breaching a keep open covenant is reasonable grounds for forfeiture. It also established that there are limits to the amount of time an insolvent tenant will be allowed to find an assignee to cure the breach.
Sneakerboy Retail Pty Ltd trading as Sneakerboy v Georges Properties Pty Ltd [2020] NSWSC 996,
The Supreme Court in NSW recently dealt with a tenant's application for relief against a forfeiture arising in the context of the COVID-19 pandemic. A tenant issued an application for relief against forfeiture, following termination of its lease on 25 March 2020. The landlord's grounds for termination was the tenant's history of late rental payments and the landlord alleged there had been abandonment of the premises following the onset of the pandemic. The Court found that a history of late rental payments did not of itself bar the tenant from relief from forfeiture, there was no abandonment and granted the tenant relief from forfeiture.
The decision to grant relief was justified by the fact that the default in paying rent was on the face of it, caused by the onset of COVID-19 that the tenant was not responsible for (despite the tenant's history of failing to pay rent on time). The Court considered the initial consequences of the pandemic on the tenant's actions.
The tenant had experienced a sudden decrease in revenue in February 2020, which it attributed to supply chain issues caused by the pandemic. In March 2020, the tenant began moving stock from the premises to a warehouse in anticipation of there being a greater demand for online orders and restrictions on the number of people that could be on the premises. The tenant's actions prompted the landlord to serve a termination notice on the grounds of non-payment and abandonment of premises.
The Court decided this was a "credible" action for the tenant to take at the time and therefore the tenant's action did not amount to an abandonment of the premises or an intention to repudiate the lease.
This article has been produced for general information purposes and further advice should be sought from a professional adviser.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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