Commercial landlords face further restrictions on rent arrears recovery

The Corporate Insolvency and Governance Act 2020 (the Act) became law on 26 June 2020 and further limits the remedies available to commercial landlords who have tenants who have not paid rent during the coronavirus pandemic. 

Landlords have faced limitations on the remedies available to them in relation to rent arrears for many months and have seen two rent quarters pass without, in some cases, receiving any rent at all. The Coronavirus Act 2020, which came into force on 25 March 2020 prevents commercial landlords from enforcing a contractual right of re-entry or forfeiture for non-payment of rent from 25 March 2020 until, initially, 30 June 2020, but this has now been extended until 30 September 2020. It does not prevent the rent being payable by the tenant, but it prevents the landlord from bringing the lease to an end for non-payment. When the moratorium is lifted, landlords will be able to seek forfeiture for payments which became due during the moratorium period.

Following concerns by tenants of landlords overusing alternative remedies, in particular statutory demands and winding-up petitions, to recover rent arrears, the Government announced on 23 April 2020 that it would pass legislation to protect commercial tenants from “aggressive debt recovery tactics”. As we noted in our update ‘Commercial landlords to be prevented from pursuing remedies against tenants’ on 24 April 2020, the announcement raised several questions. For example, what happens if the tenant has the necessary cash reserves but is still refusing to pay? Further, what happens if the rent arrears occurred prior to the outbreak?

Other remedies available to landlords

There are other remedies available to landlords, but their viability and suitability will vary on a case by case basis.

The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (No. 2) (Coronavirus) Regulations 2020 which was passed on 23 June 2020 has increased the number of days for which rent must be due under the provisions of the Commercial Rent Arrears Recovery procedure (CRAR) from at least 90 to at least 189. This method of recovery is still available to landlords who meet the new criteria and the logistical difficulties of entering premises, seizing goods and selling them posed by the lockdown are now starting to ease as more premises open up, following a lifting of the restrictions. This may prompt more landlords to consider this option of recovery.

Landlords can still pursue debt proceedings in the usual manner, although with restricted court opening times and a backlog of cases there will inevitably be long delays.

Alternatively, subject to the provisions in the lease, the landlord can draw down from the rent deposit or rely on third-party guarantees as a means of recovery, but these are likely to be available in a limited number of cases.

Landlords can not take recovery steps for non-payment

It is clear that recent legislation is providing assistance to tenants who need to manage their cash-flow during the pandemic. However, the assistance takes the form of not allowing landlords to take certain recovery steps for non-payment, it does not waive the obligation of the tenant to pay rent. 

When the legislative changes end, unless the government decides to put in place further changes, landlords’ rights and remedies will be restored. 

The government clearly hopes that by that time, landlords and tenants will have entered into a constructive dialogue about arrears with the view to reaching agreement about payment. This is reflected in the government’s recent Code of Practice for the commercial property sector. 

Many have already taken the step of agreeing on rent concessions and, in most cases, landlords are supportive of tenants who are experiencing unprecedented financial hardship through lockdown restrictions. However, when landlord remedies are re-instated, there will be some who wish to enforce the obligation to pay rent and we anticipate an increase in forfeiture and insolvency cases. Tenants who have not already engaged with their landlord about missed rental payments should consider doing so.