Extension of the Measures to Protect Commercial Tenants
We published an article on 6 May 2020 in relation to the Government’s restriction on forfeiture of commercial leases for non-payment of rent, introduced by the Coronavirus Act 2020 and the additional protections proposed by the Government to prohibit landlords from issuing statutory demands and winding up petitions as an alternative way to recover rent arrears.
As the coronavirus continues to affect the economy the Government has extended the temporary ban on forfeiture for non-payment of rent and the other methods of recovering outstanding rent until 30 September 2020. We have set out below a summary of the various remedies available and the limitations imposed.
This is the ability for a landlord to re-enter commercial premises and take back possession for non-payment of rent as well as breach of any other covenant of the Lease, thereby terminating the lease before the expiry date. This can be either by peaceable re-entry (for example changing the locks) or Court action. The timeframe initially imposed under the Act prohibiting landlords from forfeiting for non-payment of rent has been extended until 30 September 2020. It should be noted that the right for a landlord to forfeit leases for a breach of any other obligation in the lease or for a business tenant’s insolvency has not been affected (however there are restrictions on the issuing of winding up petitions/debt proceedings which will need to be taken into account). Landlords should however be careful not to waive their right to forfeit if they enter into discussions with their tenants in relation to rental concessions.
Landlords have a right to issue debt proceedings in Court to recover unpaid rent. This right remains at the present time however there are cost implications of issuing proceedings and the current pandemic has resulted in a backlog of cases with the Courts which may mean it will be several months before any debt claims can be dealt with.
Commercial Rent Arrears Recovery (CRAR)
A landlord normally has a right to instruct an enforcement agent to take control of tenant’s goods in commercial premises and sell them in order to recover the amount equal to any rental arrears. The Government initially restricted landlords from using CRAR unless the rent was more than 90 days in arrears. The latest measures which apply from 30 June 2020 have extended this period of arrears to 189 days and are currently in place until 30 September 2020.
This is the right to issue a statutory demand where a corporate debtor owes at least £750.00 to a creditor. If the debt is not then paid within 21 days of the statutory demand the creditor can issue a winding up petition against the Company. The Government has amended the original provisions of the Corporate Insolvency and Governance Bill, which was passed on 26 June 2020, prohibiting landlords from issuing statutory demands until 30 September 2020 where the demand forms the basis of a winding up petition presented at any point after 27 April 2020. It should be noted that if the statutory demand does not form the basis of a winding up petition it can still be served however unless the demand is coupled with the threat of a winding up petition it is of limited benefit to a landlord.
Winding Up Petitions
A landlord is entitled to issue a winding up petition to place a tenant into compulsory liquidation where the tenant is unable to pay its debts. The Government has also announced an extension to the ban on presenting a winding up petition until 30 September 2020 where the company’s inability to pay its debts is as a result of COVID-19.
A landlord can make an application to the Court for an administration order as a means of pursuing a tenant for unpaid rent. There is currently no limitation on a landlord’s ability to appoint an administrator however this is likely to be seen as a worst case scenario.
Enforcement of other forms of security
A landlord may have other forms of security for example a rent deposit, authorised guarantee agreement or personal guarantee which it can pursue in light of a tenant’s failure to pay rent. Again, there is currently no prohibition on a landlord enforcing these forms of security but there may be various processes to be complied with in order to do so and legal advice should be sought to ensure that any such right is exercised correctly.
For more information contact our head of commercial property, Julia Ferguson.