Within the context of private law responses to the current Covid crisis, this blog post focuses on the property-related area of tenancies and how legislative protection is granted by moratoria (i.e. authorised periods of delay in the performance of private legal responsibilities, such as payment of rent). A comparative perspective will be provided by looking at the British and at the German measures.

Giving things a pause

Johannes Ungerer

Before going into the details of tenancies, it seems recommendable to set the scene by having a general look on private legal obligations affected by the Coronavirus pandemic and its economic consequences. The most important observation is that, despite the public lockdown in both countries, there has been no universal moratorium for private debts and other obligations. Whilst the general limitation of freedoms of public life might have been necessary and enacted, no universal moratorium has been authorised for private debt. This is understandable as it would have suspended and probably exterminated private trade and business, leading to an economic meltdown. So, in principle, private parties have to stick to their contractually agreed obligations, unless they can rely on a force majeure clause or benefit from governmental protection of vulnerable groups.

It is against this background that the special protection of tenancies has to be seen. Like in Germany, the British legislator has introduced special provisions for the protection of tenants. The common ground seems to be that maintaining one’s rented dwelling and business premises in these times of crisis is of paramount importance for every individual, and therefore the State, and this has led to the adoption of moratoria for tenants. The importance of tenancy protection is evident in Germany, where around half of the population live in rented accommodation, and in the UK still a third, which is to be seen in addition to the increasing commercial rentals of more than 50%.

Red and White Signage

Pexels

In the UK, the Coronavirus Act 2020 stipulates a bifurcated regime. A forfeiture moratorium was introduced for commercial tenants in financial difficulties. Businesses are given blanket protection against forfeiture for non-payment of rent to their landlords during the approximately three-month period until the end of June, regardless of the reason. This applies to all commercial tenancies under the Landlord and Tenant Act 1954 of more than six months. As terminating the tenant’s lease is the most serious of the remedies available to a landlord, the moratorium is a meaningful measure. Nevertheless, deferring only one of the remedies landlords may impose might prove insufficient for many businesses. For example, landlords maintain the options of withdrawing outstanding amounts from a rent deposit or initiating a commercial rent arrears recovery process. Most importantly, tenants drawing on the moratorium will need to be prepared to pay their arrears in addition to their ongoing rent in July, when the currently provided period expires, unless the moratorium will be extended.

A comparable extension of (at least) three months was made with regard to notice periods for practically all residential tenancies in the UK. The extension applies to a notice served until the end of September 2020 – that is already two months longer than for businesses. This moratorium is a significant modification compared to the ordinary requirements of the Housing Act 1988, under which a claim for recovery of possession based on outstanding rent can be commenced just two weeks after serving a notice. However, for the current most common form of residential tenancy – the assured shorthold tenancy – this means only an increase of one month in addition to the two months which are ordinarily required on expiry or termination (and a longer notice period may anyway be required when terminating a periodic tenancy).

Germany enacted a universal protection of tenancies, which does not distinguish between commercial or residential purpose and could therefore be seen as somewhat more straightforward. The German restriction on the termination of tenancies, which effectively resembles the British approach in substance, was introduced by the Act to Mitigate the Consequences of the Coronavirus Pandemic. The landlord may not terminate a tenancy on the sole ground that the tenant cannot pay rent, which is due in the three-month period until the end of June, similar to businesses in the UK. The condition is that the non-performance results from the pandemic, which must be substantiated by an affirmation in lieu of an oath. Notably, a right of termination for any other reason is not affected by the newly introduced restriction.

Brown Building

Pexels

It has become clear from the comparison of the emergency measures that both the UK and Germany have granted special protection to commercial and residential tenants in a largely similar fashion, whilst shunning an unviable general amnesty for debts and other obligations. What remains unclear and needs to be seen in future is what will happen once the moratoria are lifted, as there are fears of a cliff-edge triggering an “avalanche of evictions”; then, tenant protection will depend on the ordinary legal position, which can be characterized to be significantly stronger for tenants in Germany than in the UK, where tenants might be facing the real consequences of the Covid crisis. To improve the position of tenants in the UK, the Government is currently considering the “pre-action protocol”, which to date applies to social landlords seeking possession and could be extended so that private landlords would be obliged to work in good faith with their tenants and to comply with the protocol before rent arrears-based possession proceedings could be commenced. In addition to extending the pre-action protocol, it has been recommended by the House of Commons Committee on Housing to amend the Housing Acts and allow judges to use discretion where a tenant is in rent arrears due to the coronavirus crisis for the next 12 months. The Government is considering a long-term reform to abolish the use of ‘no fault evictions’ altogether by removing section 21 of the Housing Act 1988.

For the time being, and potentially even more so in future, protecting the tenant as one of the parties to a bilateral contract however shifts the financial impact onto the landlord. Cash-flow and other financial problems are pushed up the chain to the landlords as creditors. Their financial obligations to pay off loans and mortgages have not received general protection in turn. However, the UK and Germany have, to slightly varying extents, addressed specific issues that affect borrowers. Among the temporary measures, which have been suggested to and have been implemented by banks in the UK, is a payment holiday on mortgage payments, which benefits landlords and other homeowners; this scheme has recently been extended until the end of October. The German legislator has granted relief only to consumer borrowers by introducing a corresponding consumer loan repay moratorium on the condition that the consumer has lost income due to the Covid crisis and it would endanger their reasonable livelihood to repay the loan.

To summarise the above observations, the UK and Germany have adopted specific emergency measures to respond to the challenges posed by the Coronavirus pandemic onto tenants. Through legislation, both jurisdictions have granted special moratoria for commercial and residential tenancies. Perhaps even more importantly, it will be necessary to avoid a “second wave” of financial distress and the danger of evictions when the emergency measures will expire.

This paper was presented at the Faculty Webinar “The COVID-19 Crisis: Legal, Policy and Ethical Challenges” on 5 June 2020. It is based on the paper “Coronavirus measures in private law: Comparison of moratoria in the United Kingdom and Germany”, which was published in (2020) Oxford University Comparative Law Forum 1.

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How to cite this blog post (Harvard style) 

Ungerer, J (2020). Coronavirus Moratoria in Private Law: Comparing the Position of Tenants in the UK and Germany. Available at: https://www.law.ox.ac.uk/research-and-subject-groups/property-law/blog/2020/06/coronavirus-moratoria-private-law-comparing (Accessed [date]).