As we reach the midway point in England’s second period of lockdown it is worth revisiting the measures put in place by the Government to protect commercial tenants who are unable to pay their rent during the COVID-19 pandemic. The measures include:
Restrictions on Commercial Rent Arrears Recovery (CRAR)
The Government announced that CRAR protections will be extended until 31 December 2020. The CRAR Regulations, which prevent landlords from utilising CRAR unless an amount equal to 90 days’ net rent was unpaid increased to 189 days’ rent from 24 June 2020 and up to 276 days’ rent from 29 September 2020. This will further increase to 366 days’ rent from 25 December 2020 under the Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020.
Forfeiture restrictions
Section 82 of The Coronavirus Act 2020 prohibits landlords from exercising forfeiture (both through the courts and by peaceable re-entry) for non-payment of rent until 31 December 2020, if the tenant’s failure to pay is a direct result of the pandemic. “Rent” is termed as any sum payable under a business tenancy including insurance, interest and service charges.
Prohibition on use of statutory demands and winding up petitions
Under the Corporate Insolvency and Governance Act 2020 (CIGA 2020), the presentation of a winding up petition based on an unpaid statutory demand served between 1 March and 31 of December 2020 is prohibited, unless the landlord has reasonable grounds to believe the pandemic has not had a financial effect on the tenant or the tenant would have been unable to pay its debts even if the pandemic had not had a financial effect on the tenant. This has been discussed in greater detail here.
Available options for landlords
Whilst these measures have come as a welcome relief for many tenants at this difficult time, they have severely curtailed the options available to landlords, many of whom will also be facing challenges themselves. There are, however, a number of ways in which landlords can apply pressure to tenants to comply with the terms of their lease, including:
Debt proceedings
There are currently no restrictions on landlords issuing debt claims in either the High Court or County Court. A rent arrears claim and an application for summary judgment can usually be determined fairly swiftly. The threat of such a claim may be a useful tool in the landlord’s armoury, providing of course the tenant is solvent and able to satisfy any judgment.
Rent deposits
Similarly, there are no restrictions preventing landlords from drawing from rent deposits. However the Government’s Code of Practice for commercial property relationships during the COVID-19 pandemic seeks to promote transparency and collaboration between landlords and tenants and suggests that any drawing from rent deposits be on the understanding that tenants are not required to top up the deposit before it is realistic and reasonable for them to do so.
Recovery from former tenants and their guarantors or existing guarantors
Landlords may also wish to explore whether they can pursue former tenants and their guarantors for any sums due. However they should be mindful of the strict time limits imposed by the Landlord and Tenants (Covenants) Act 1995 and it is prudent to take advice on this point promptly. If an existing tenant’s obligations are guaranteed by a third party it is important that landlords check the wording of the guarantee to see if liability has been triggered and to ascertain what options are available to them.
If you are a tenant or landlord facing difficulties as a result of the pandemic, it is important to receive appropriate advice at the earliest opportunity. For more information, please contact Sarah-Kate Jackson or Claire Mac Mahon in our property litigation team who will be happy to talk through your options.