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  • Real Estate
  • 06-04-2020

By David van Dijk

Dev Desai and Alexander Mulroney of Watson Farley & Williams wrote a very interesting analysis of the UK’s Coronavirus Act 2020, which received Royal Assent on 25 March. The Act aims to combat COVID-19-related issues and became effective on 26 March 2020.

The authors discuss in particular the introduction, until 30 June 2020, of a prohibition on the forfeiture of leases by commercial landlords in England, Wales and Northern Ireland due to the non-payment of rent by tenants.

Refusal by tenants to pay rent

The non-payment of rent by tenants has become prevalent in many countries due to the COVID-19 crisis. In the Netherlands, retailer A.S. Watson (owner of ICI Paris XL and Kruidvat) announced last week that it would stop paying rent altogether, prompting one of its landlords to lodge a petition seeking the retailer's involuntary bankruptcy.

Another major Dutch retailer, Blokker, took another – and probably more constructive – approach and announced that it would continue to pay rent but at the end rather than the beginning of the month.

Criticism of the Coronavirus Act 2020

In their analysis, Desai and Mulroney conclude that the temporary ban on the forfeiture of leases is flawed and that the Coronavirus Act 2020 fails to provide a comprehensive solution. They point out that the UK’s retail and casual-dining sectors were already struggling prior to the COVID-19 lockdown. The ban on lease forfeiture will not help tenants (i) faced with alternative action by landlords or (ii) discharge their arrears in July 2020 when the ban expires.

Comparison with the Dutch system

In the Netherlands, the legal situation is quite similar in practice.

The Dutch government has not introduced specific COVID-19 legislation allowing tenants to postpone their rent payments or prohibiting landlords from forfeiting leases. However, this already follows from the existing legal system. In the Netherlands, a commercial lease cannot be forfeited without court approval.

Moreover, even though eviction orders can in theory be obtained in summary relief proceedings in the Netherlands (before obtaining judicial authorisation to forfeit the lease, which can only be requested in proceedings on the merits, which usually take about a year), it is unlikely that the courts will grant such orders any time soon, given the present circumstances and if the arrears do not exceed three months’ rent.

It is furthermore unlikely that a landlord seeking an eviction order will even be able to obtain a court date for summary relief proceedings in the coming weeks or months.

In summary, neither the UK nor the Dutch system resolves the current issue of landlords expecting payment of rent from tenants that are either unwilling or unable to do so.   

Finding a new balance

This emphasizes the crux of the matter: this is, at its core, not a legal problem at all but rather a commercial issue of supply and demand. In time, the stakeholders will have to strike a new balance. The sooner all parties acknowledge this fact and start working together, the better their chances of limiting the damage to all sides.  

Author's note: This article is a follow-up to the article "Finding a new balance" posted on 1 April 2020.

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