On Wednesday 25 March, the Coronavirus Act 2020 gained royal assent and came into force. For residential tenants who risk facing eviction due to the far-ranging financial impact of the coronavirus, section 81 of the new Act provides some short-term relief in Schedule 29. The Schedule provides for notice periods for recovery of possession to be extended to three months. However, the Act has been criticised by the Opposition for not going far enough to secure the housing rights of residential tenants, particularly since rent arrears will continue to accrue for the duration of this coronavirus emergency. In contrast, protections for commercial tenants in section 82 are far more radical, strengthening business tenants’ security of tenure and imposing a ban on re-entry or forfeiture for non-payment of rent. Through a comparison of section 81 with section 82, it will be shown how the Coronavirus Act prioritises the interests of commercial tenants.

Suspension on Evictions

Under the Coronavirus Act, commercial tenants who fell behind on rent arrears before 26 March stand to benefit from strong protections against eviction for non-payment of rent. Section 82(1) states that no rights of re-entry or forfeiture which arise from non-payment of rent may be enforced, by action or otherwise, until 30 June. This means that where a commercial tenant has accrued rent arrears prior to 26 March, they may not be evicted until 30 June, despite the landlord having a right to re-entry. For example, Primark stands to benefit from the new provisions, having refused to pay £33m in rent on 25 March.

Section 82(1) falls short of banning re-entry or forfeiture completely, since lease forfeiture may have other causes than rent falling into arrears, such as insolvency or breach of a covenant. However, on 23 April, the government announced that it would ban the use of statutory demands and winding up petitions where a company cannot pay bills due to the coronavirus from 27 April until 30 June.[1] Therefore, commercial evictions cannot be caused by businesses becoming insolvent. Overall, commercial tenancies cannot be lost due to the financial impact of the coronavirus, until 30 June. 

In contradistinction, there is nothing in section 81 to stop an order for possession from being brought. The extension of the notice period in Schedule 29 to three months only affects notices to quit made after 26 March. Since the Act cannot have retrospective effect, the notice period is therefore unaltered for residential tenants who were served with a notice before that date. After heavy criticism, the failure of the Act to protect residential tenants from eviction during the lockdown was partially remedied through a government announcement on 27 March, which postponed all housing possession action for 90 days. The postponement was the result of a decision by the Master of the Rolls, with the Lord Chancellor’s agreement. Since the requisite notice period under Schedule 29 is three months, the 90-day postponement was introduced to protect only those residential tenants who were served with a notice before the passing of the Act.

Perhaps commercial tenants were given stronger protection than residential tenants because they often have less warning before an eviction. The ban in section 82(1) is especially important because forfeiture for non-payment of rent is the only type of lease forfeiture which does not require a serving of notice on the tenant under section 146 of the Law of Property Act 1925. If a business falls behind on rent arrears, a landlord can usually seize back the premises through re-entry without providing the tenant with a notice period. Conversely, where the property has been let as a dwelling, section 3 of the Protection From Eviction Act 1977 requires that the landlord obtain a court order prior to recovering possession. The possibility of evicting commercial tenants without notice might explain why a partial ban on evictions was introduced in section 82(1).

Nonetheless, it is unfortunate that Parliament neglected to ban the eviction of residential tenants through the Coronavirus Act, rather than providing a reactionary response through the temporary postponement. Until the end of June, this failing does not pose any practical difficulties. In the short term, commercial and residential tenants who fall behind on rent arrears will be in a similar position. A residential tenant cannot face eviction until 25 June at the earliest, which is the date when the 90-day government postponement on evictions is set to be lifted. A commercial tenant may not be evicted for non-payment of rent, or as a result of becoming insolvent due to financial difficulty, until 30 June. However, the Coronavirus Act remains symbolic of Parliament’s disregard for the 23 million households who live in private rented accommodation.

After June, the position of residential tenants could be vastly different from that of commercial tenants. On 30 June, the measures introduced for commercial tenants in section 82 will expire, while the protections for residential tenants in Schedule 29 will continue to run until 30 September. However, it must be noted that the Coronavirus Act confers a discretion to extend the relevant periods in both Schedule 29 and section 82 beyond 30 September and 30 June respectively. An extension of section 82 could protect commercial tenants from losing their property due to non-payment of rent, in light of subsection 1. In contrast, the modest changes made to notice periods in Schedule 29 could not protect residential tenants, since the Act only provides for a suspension on residential evictions rather than a ban.

Security of Tenure

The Coronavirus Act ensures that non-payment of rent will not affect a commercial tenant’s security of tenure. In English Law, the security of tenure afforded to commercial tenants means that business tenancies are open-ended; unless the landlord serves the tenant with a notice to quit, six to twelve months before the lease’s expiry date, the lease continues past its contractual term.[2] In a notice to quit, the landlord of commercial premises must specify the statutory grounds on which they oppose the grant of a new business tenancy. One such statutory ground is a persistent delay in paying rent, under section 30(1)(b) of the Landlord and Tenant Act 1954. Under section 82(11) Coronavirus Act, any commercial tenant’s failure to pay rent until 30 June 2020 is not to be treated as persistent delay in paying rent for the purposes of section 30(1)(b). Therefore, section 82(11) strengthens a commercial tenant’s security of tenure.

In contrast, security of tenure does not apply to assured shorthold tenancies (ASTs), which are the most common type of residential tenancy in England and Wales. Initially, security of tenure applied to both residential and commercial tenancies through the Rent Act 1977. The protection afforded to residential tenants was reduced by the Housing Act 1988 and the Housing Act 1996. These provisions ensured that all assured tenancies granted after March 1997 would be ASTs; they could be terminated by the landlord after their contractual term expired, without justification. As a result, so called ‘no-fault eviction’ remains a possibility for residential tenants, but not for commercial tenants.

A Change in Priority

Comparing the position of commercial and residential tenants under the Coronavirus Act serves as a reminder that most residential tenants in England and Wales have no security of tenure. On the one hand, strengthening security of tenure through section 82(11) of the Coronavirus Act is necessary to protect businesses. The economic fallout from the pandemic is predicted to be one of the biggest shocks in generations, so legal measures to mitigate this financial crisis are necessary. Security of tenure is especially important for business owners, allowing them to establish a base of operations and a steady client base. It provides a layer of security which drives investment in business. However, it is submitted that security of tenure is equally important for individuals as it is for businesses.

Private renters have a need for secure family homes. In the 1980s and 1990s, Conservative Governments reduced the security of tenure of residential tenants, in order to boost profitability in the private rented sector.[3] However, in the past ten years, the profile of the average private tenant has changed; in particular, there has been a marked increase in the proportion of families living in the private rented sector.[4] This shift has invited calls to re-extend security of tenure to residential tenancies.

There is an argument that banning no-fault evictions would result in landlords being more selective with their tenants, which would backfire on low-income tenants. However, housing charity Shelter uses the example of Scotland to argue that such fears are overstated. In Scotland, assured and short assured tenancies have been replaced since December 2017 by the open-ended private residential tenancy. No-fault eviction has been disbanded and landlords can only evict tenants by using one of 18 grounds of eviction listed in Schedule 3 of the Private Housing (Tenancies) (Scotland) Act 2016. Importantly, there is no evidence that the changes have impacted tenants negatively. In light of the changes in Scotland, it is time for the UK Parliament to consider re-extending security of tenure to residential tenancies.

Conclusion

It is reasonable that a distinction should be made in law between commercial and residential tenants, to reflect these tenants’ divergent needs and bargaining positions. However, arguably, the Coronavirus Act prioritises the interests of commercial tenants over residential tenants too much. Commercial tenants cannot lose their property for non-payment of rent for as long as section 82 of the Coronavirus Act remains applicable. Schedule 29 confers no similar protection on residential tenants, who could be faced with homelessness after the government's postponement on housing possession action is lifted. The security of tenure of commercial tenants is enhanced by section 82(11), while residential tenants do not enjoy security of tenure under English Law. In light of the Act’s shortcomings to protect residential tenants from eviction for non-payment of rent, non-legal protections are required. Already, a £500m government package is being made available to households experiencing crises. One hopes that this financial support will be sufficient. At a time when the government’s slogan is ‘Stay at Home’, it would be ironic if residential tenants risk being evicted after 25 June as a result of the pandemic.

 

[1] These new measures will be included in the Corporate Insolvency and Governance Bill 2020.

[2]  Landlord and Tenant Act 1954, s 25

[3] For a discussion, see McDonald v McDonald [2016] UKSC 28 [11] - [19], per Lord Neuberger

[4] House of Commons, Comparing private rented sector policies in England, Scotland, Wales and Northern Ireland (Library Briefing Paper Number 07624, May 2019) p3