My blog of 26th March 2020 covered the options for commercial landlords and tenants as things stood then.
Since the time of writing, the Government has made more announcements that further protect commercial tenants and further limit commercial landlord’s options for recovering arrears during COVID 19. The full announcement can be found here https://www.gov.uk/government/news/new-measures-to-protect-uk-high-street-from-aggressive-rent-collection-and-closure
The Government said the aim of the measures is to protect high street shops and other companies under strain from aggressive rent collection, but also notably in the headline is that businesses are asked to pay what they can; a reminder for tenants that these measures do not release them from their obligations to pay the rent.
In my last blog https://bhayanilaw.co.uk/advice-for-commercial-landlords-and-tenants-affected-by-coronavirus/ I explained the new restrictions on forfeiture and possession claims for commercial landlords until 30th June 2020.
Instead of using the above, some landlords were resorting to insolvency procedures, and serving statutory demands on their tenants and issuing winding-up petitions for unpaid rent, or they were employing the CRAR procedures. This is the “aggressive rent collection” referred to by the Government. It was announced on 23rd and 25th April 2020 that a temporary stop would also be put on these methods, as follows:
- A ban on the use of Statutory Demands and Winding-up Orders for Coronavirus-related reasons. Statutory Demands dated between 1st March 2020 and 30th June 2020 cannot form the basis of a winding-up petition and winding up petitions presented between 27th April and 30th June 2020 will be voided where “a company cannot pay its bills due to COVID 19”. There is no clarity on how a company being unable to pay its bills due to COVID 19 would be assessed by a court. It is assumed that “bills” includes rent as the announcement was very much directed to landlords.
- A ban on Commercial Rent Arrears Recovery (CRAR) by landlords unless there are 90 days rent owed. CRAR is a process in which a landlord instructs an enforcement agent to take control of goods and sell them to cover the arrears.
At the time of writing these measures have not formally be put in place but the government says the legislation is going forward.
What can Landlords and tenants do?
Landlords’ options are limited, at least until 1st July 2020. There is potential for the measures to be extended beyond that, as arrears will have accrued during the moratorium period and will not disappear the minute the lockdown ends. There are likely to be repercussions for some time afterwards. As in my first blog, suing the tenant for rent arrears is still an option. The tenancy would continue, the landlord would obtain a judgment for the debt. However, the courts are currently likely to be working slowly and will have a backlog to deal with even as things return to normal. Even if a landlord obtains a judgment for the arrears, that does not mean they will recover payment if the tenant ultimately does not have the funds. Depending on the terms of any rent deposit, that could be used towards arrears, or there might be a personal guarantor from whom a landlord can demand payment. More drastically, the parties could agree a surrender or look at exercising any break clause if either wants to terminate the tenancy earlier than the contractual term. Tenants should remember that the protective measures do not release them from their obligations to pay rent and that rent unpaid during this period will still be owed. The message from the Government is still that tenants and landlords should try to come to an accommodation, and that tenants should be paying what they can. Both parties are encouraged to have a dialogue.
If you are a commercial tenant or landlord who would like advice on this subject or other commercial property related issues, Sarah Coates-Madden can help email [email protected] or call 0114 303 2300.