Commercial landlords to be prevented from pursuing remedies against tenants
On 23 April 2020, the Government announced further protection for commercial tenants from “aggressive debt recovery tactics”. The announcement is focused on high street shops, but also extends to “other companies” who may also be impacted by the Covid-19 restrictions.
In brief, the Government is looking to prevent commercial landlords from relying on statutory demands and winding-up petitions to enforce payment of rent arrears where a tenant company cannot pay due to the pandemic. There will also be secondary legislation preventing landlords from using Commercial Rents Arrears Recovery, unless they are owed 90 days of unpaid rent. We await more details from the government and a copy of the draft Bill.
Since the Coronavirus Act (the Act) came into force on 25 March 2020, landlords have been prevented from enforcing a contractual right of re-entry or forfeiture for non-payment of rent from 25 March 2020 until at least 30 June 2020. However, the Act does not prevent commercial landlords taking other action to recover the rent arrears, including issuing Court proceedings for the rent, initiating winding-up proceedings with a petition or a statutory demand, retaining a deposit or pursuing a guarantor under the lease. For more information, please see our article on ‘Coronavirus: emergency legislation to protect commercial tenants’ from 24 March 2020.
Many landlords and tenants have been able to reach their own temporary agreements with rental holidays, rent reductions or concessions on quarterly payments. Where landlords and tenants have been unable to reach agreement however, and the tenant is refusing to pay, landlords have been able to at least threaten winding-up proceedings in order to prompt discussion. Where there is no dispute that the tenant is liable to pay the rent, issuing a statutory demand or serving winding-up petition is a cost-effective way of encouraging the tenant to engage with their landlord.
Inevitably, the announcement yesterday raises questions. Not least, how the legislation will seek to “temporarily void” statutory demands and winding-up petitions. Further, it is not yet clear what will happen if a tenant has the necessary cash reserves, but is simply refusing to pay the rent due under the lease? Also, if rent arrears accrued before the outbreak, will landlords be able to issue and rely on statutory demands and winding-up petitions?
Government is also laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords from using Commercial Rent Arrears Recovery (CRAR) unless they are owed 90 days of unpaid rent.
What we can say, at least according to the announcement, is that the new measures will leave some remedies available. The measures do not look to waive the rent or remove the tenant’s liability to pay. Landlords can still pursue a debt claim through the usual Court proceedings, take action against a guarantor and, depending on the availability draw down on a deposit.
The Government measures, so far, heavily focus on protecting commercial tenants, but the Government has recognised that the pandemic is affecting commercial landlords too. Many commercial landlords depend on rent payment in order to repay loans and make mortgage payments. Communities Secretary, Robert Jenrick said that the Government understands “landlords are facing their own very serious pressures and […] are working with banks and investors to seek ways to address these issues”. The Government announcement calls on tenants to pay rent where they can afford it or what rent they can in recognition of the strains felt by commercial landlords too.
For more information regarding the new measures, please contact our expert listed below.
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