Further measures by the Government to protect commercial tenants
Following the restriction on a landlord’s ability to forfeit a lease for non-payment of rent, introduced by the Coronavirus Act 2020, the Government has again stepped in to offer more protection to commercial tenants by prohibiting landlords from issuing statutory demands and winding up petitions as an alternative way to recover rent arrears. Normally a statutory demand can be issued where a corporate debtor owes at least £750.00 to a creditor. If the debt is not then paid within 21 days of the date of the statutory demand, the creditor can issue a winding up petition against the company. It appears that some landlords have been using this process as a means to put pressure on tenants to pay their rent. The new legislation will require any winding up petition on the grounds that a company is unable to pay its debts to be reviewed by the court initially and will prohibit any permissions being presented or winding up orders made where the company’s inability to pay its debts is as a result of Covid-19.
The restrictions are to be included within the Corporate Insolvency and Governance Bill as set out by Business Secretary, Alok Sharma and will be in force until 30 June 2020. Exactly how the courts will deal with this and what constitutes an inability to pay “as a result of COVID-19” is not however clear and it remains to be seen whether the Government will extend these measures beyond that date in line with any extension to the current moratorium on commercial lease forfeiture for non-payment of rent, which came into force on 26 March 2020.
The Government has also proposed legislation to prevent landlords from using commercial rent arrears recovery (CRAR) – a method of taking control of tenant’s goods as payment for outstanding debts – unless the tenant is more than a quarter’s rent in arrears.
As we have said previously, the majority of landlords and tenants are working together to make arrangements for payment of rent and other sums due under commercial leases during these uncertain times but the Government felt that some landlords had been using unnecessarily aggressive debt recovery tactics. The measures do however leave the door open for companies to cease paying creditors, even where they are financially able to do so, in the knowledge that no petition can be presented against them. The Government has acknowledged that Landlords themselves are facing financial pressures and has called “on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too”. What effect this will have remains to be seen and Landlords may instead need to consider other means of rent recovery at their disposal, for example claiming against guarantors, drawing on any rent deposits held or issuing a debt claim (not currently prohibited).
For more information please contact our Head of Commercial Property, Julia Ferguson.