Getting Possessive: Understanding Possession Options in 2021

Getting possessive is rarely a desirable trait.

Particularly in the commercial lettings sector, a key focus for the government over the past year has been avoiding mass evictions. Not least for saving landlords from the prospect of shudder void periods, but also for protecting tenants and by extension, the UK’s economic recovery.

Commercial landlords in England and Wales still have options for recovering costs, but it can be tricky to know their legal standpoint for possession, particularly with protections for commercial tenants now extended until the end of June 2021.

This article goes through areas where commercial landlords may need to evict a tenant, and the options available. Legal advice should be sought for individual circumstances, as the complexity of gaining possession has only been exacerbated by the pandemic.

Avoiding possession in the first place

Depending on specific circumstances, avoiding possession is usually the best option for everybody. Turfing out tenants is not why most landlords get into the business; most prefer to find and keep the good ones.

Liability for payment of arrears (and potentially other charges, such as for services) remains with tenants, so in terms of recovering costs, landlords still have quite a few options. You can find more detail on the options available, here.

1. A commercial tenant is in breach of their contract, but they are still paying rent

If the tenant is in breach of their contract in another way, such as altering the building without permission, landlords may be able to gain possession in the usual, pre-pandemic way.

The Coronavirus Act 2020 only covers non-payment of rent (and potentially some other costs, such as service charges). As such, landlords could serve a Section 146 notice and follow the eviction process in the pre-pandemic way if a tenant has breached the contract in another way.

This can be a complex legal process, particularly if the tenant is not paying rent due to COVID-19, as well as breaching the contract in another way. Advice should be sought on an individual basis from an experienced commercial property solicitor.

2. A commercial tenant who is not paying rent, but this is arguably not due to COVID-19

A key aspect of the moratorium on forfeiture is that it’s not means-tested, and applies to all business tenancies.

A tenant could simply refuse to pay, or use the pandemic to renegotiate the terms of their contract. Some high street retailers have allegedly been using CVAs to address trading issues that were there before the pandemic.

There is unfortunately little that commercial landlords can do before the protections for commercial tenants end.

That being said, the tenant is still liable for the period in which they defaulted, so landlords may have the option to recover the property from the 1st of July.

With the resumption of business rates and the potential difficulty of finding a new, paying tenant, landlords may find themselves out of the frying pan and into the fire.

3. A commercial tenant without a permanent contract

A tenancy-at-will, licence to occupy or a short term tenancy (less than 6 months) are not covered under the moratorium. This means that landlords could gain possession if the need arises.

Caution needs to be had, as the Landlord and Tenant Act 1954 may protect a tenancy-at-will or licence-to-occupy tenant. This may apply if certain conditions are met, such as sole-occupancy of premises.

A properly drafted agreement, with no ambiguity, will confirm whether or not the landlord has the right to possess a property through pre-pandemic methods. If there is ambiguity, the tenant may be protected under the same rights as any other with a signed, long term or permanent commercial tenancy.

4. A commercial tenant who can’t afford the lease, even after 30th June 2021

If a business is not able to afford rental payments after the protections for commercial tenants end, they are still liable for the terms of the lease.

If a contract has a force majeure clause, a tenant could be released from their contractual obligation. Whether or not the pandemic constitutes a force majeure event will depend on the individual contract, however.

Adherence to the Code of Practice (see below), peaceable re-entry and avoiding the usual possession process is likely to be preferred for all involved parties. Taking legal action is likely to be expensive and particularly slow with such high demand for the courts.

Code of practice for commercial property relationships

The government’s Code of Practice aims to guide agreements between landlords and tenants, but it is not legally binding. It remains in place until 24th June 2021.

It may be difficult for commercial landlords to reach their desired outcome during voluntary dispute resolution with a tenant, if in breach of guidance within the Code.

Generally, the Code encourages the following:

• Full transparency between both parties, such as landlords passing payment holidays onto their tenants, if in receipt of one from their lender
• Collaboration to benefit both parties as much as possible
• Using government support to solve problems where possible
• Acting reasonably and being aware of the responsibilities of the other party
• Payment arrangements should be fair to both parties, such as agreeing to temporary deferrals/reductions or charging monthly (as opposed to quarterly)

If you need legal advice regarding your commercial lease or would like to take action against a tenant, please contact Carlsons Solicitors. With a senior legal team that is highly experienced in commercial property litigation and Alternative Dispute Resolution, we can help you to resolve any issues you may encounter.