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The government announced on 19 June 2020 that it will be extending the restrictions on the ability of landlords to recover commercial rent arrears from tenants as follows:
- Amending the Coronavirus Act 2020 to extend the moratorium on evictions for non-payment of rent from 30 June to 30 September
- Further legislation preventing landlords using Commercial Rent Arrears Recovery unless they are owed 189 days of unpaid rent
- Amending the Corporate Insolvency and Governance Bill, extending the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to coronavirus until 30 September.
The UK government has announced temporary new measures aimed at safeguarding the UK high street against what Business Secretary Alok Sharma has described as "aggressive debt recovery actions" during the coronavirus (COVID-19) pandemic.
The effect of the measures will be that:
- Statutory demands and winding up petitions issued to commercial tenants are to be temporarily voided and restrictions placed on the use of Commercial Rent Arrears Recovery; and
- Landlords and investors are being asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic.
Statutory demands and winding up petitions
The announcement suggests a temporary automatic voiding of statutory demands and winding up petitions to prevent the use of "aggressive debt recovery tactics" by some landlords.
However, it appears courts will have some discretion as to whether a statutory demand can be lawfully presented, or winding up order made against a tenant company, by reference to whether the reason for the company's debt is COVID-19 related.
The details of the provisions (and the exercise of the court's discretion) will become clear once the Corporate Insolvency and Governance Bill has passed (expected imminently).
CRAR
Secondary legislation is also being enacted preventing landlords from using Commercial Rent Arrears Recovery (CRAR), unless 90 days or more of unpaid rent is owed.
The government has however called on commercial tenants to pay rent where they can afford it, or to pay what they can, to alleviate the financial strain on commercial landlords.
The new emergency measures are in addition to the moratorium on evictions for commercial tenants for a minimum three-month period, brought about by the Coronavirus Act 2020, and will be in force until 30 June.
However, there is scope for the measures to be extended in line with the moratorium on commercial lease forfeiture (see our previous article: Commercial leases and the Coronavirus Act 2020).
The Financial Conduct Authority, the Financial Reporting Council and the Prudential Regulatory Authority have also issued a joint statement encouraging investors and lenders to take into account issues arising directly from the COVID-19 pandemic in responding to potential breaches of covenants.
Remedies which remain available to a landlord where a tenant does not pay rent, and which remain unaffected (for the time being) by the new measures, include:
Court proceedings
The option of commencing court proceedings for recovery of rent and service charges remains.
However, the process is likely to be very slow given the adjustments that the courts are currently making.
Rent deposit
If the landlord holds a rent deposit, and subject to the terms on which it is held, a landlord can retain deposit monies to cover rent (and often service charge) arrears.
However, as is the case in 'normal' times, the landlord needs to look to the tenant to replace such sums, which may be a challenge under the circumstances. In the short term, this may be an attractive remedy for landlords who hold rent deposits.
Guarantors
Pursuing guarantors of commercial leases for rent arrears is still possible under current legislation, subject to the fact that it may be difficult to commence the proceedings necessary to claim these funds.
As things stand the normal contractual and statutory provisions apply to guarantors.
Section 81 of the Tribunals, Courts and Enforcement Act 2007
Under s.81 of the Tribunals, Courts and Enforcement Act 2007, a landlord can serve notice on a sub-tenant, requiring them to pay rent directly to the superior landlord. However, if the subtenant has already paid its rent (to the sub-landlord), it is not required to pay twice.
A link to the government announcement can be found here.
For expert advice on these and other property-related issues, please make contact with our team of specialist contentious real estate experts.
For more information please visit Fieldfisher's COVID-19 content hub, we are updating this daily with up-to-date information.