Requests from commercial tenants for rent holidays due to a drop in business caused by the coronavirus pandemic have become commonplace. As the tiered lockdown continues we are increasingly seeing tenants trying to release themselves from unprofitable leases and the obligations therein.
So what steps can landlords now take to protect themselves as we enter these uncharted waters?
What is the law?
Section 82 of the Coronavirus Act 2020 (“the Act”) passed on 25 March 2020 means no business tenant can be forced out of its premises if it misses a rent or other lease payment (including service charges and insurance rent) until (originally) 30 June 2020. The Act however gave the Government power to make future extensions of this moratorium on forfeiture and last week the Government announced a further, “final extension” to the moratorium on forfeiture of commercial business property to 31 March 2021.
In line with that further extension, the temporary ban on the use of statutory demands and winding up orders for non-payment of rent are also extended until 31 March 2021.
So can landlords use any other direct means to claw back arrears from a tenant?
Pre-Covid, landlords would have been able to proceed under Commercial Arrears Rent Recovery (CRAR) rules. They could therefore instruct an agent to take control of a tenant’s goods and then sell them to cover the debt. Under the Covid regime however landlords will be prevented from using CRAR unless they are owed the equivalent of at least 366 days of unpaid rent.
This doesn’t look great for landlords. Is there anything that a landlord can do?
If there is one in place, a landlord might be able to draw down on a rent deposit. Rent deposit deeds are particularly useful in these situations and they invariably oblige a tenant to top up the deposit following withdrawal.
If there is no rent deposit then it is important to note that although a landlord’s right of direct action (for example through forfeiture or CRAR) has been temporarily removed, a landlord can still issue court proceedings for non-payment of rent. A claim would be a simple breach of contract claim and the courts are still ‘open for business’ albeit on a reduced basis. Nevertheless even though a claim for debt can be brought, it is unlikely that any such claim would be concluded before the end of the current moratorium of 31 March 2021. In any event before bringing a claim a landlord would want to be satisfied that a tenant would ultimately be able to satisfy any judgment obtained.
What of the future?
The clear intention of the Act and the Government’s further proposals announced last week is to preserve businesses so that when we come out of the tiered lockdown the economy can get back to something like normal as soon as possible. Landlords are therefore encouraged to take a longer term view and work with tenants to seek to preserve the tenant’s business and therefore the future rent roll for landlords.
Importantly, the recently implemented changes set out as above are temporary emergency measures in place until the end of March of next year. Landlords will be reassured to learn that the changes do not in themselves alter a tenant’s liability for payment of rent. Rather, they only alter the remedies available to the landlord for non-payment of rent. A landlord’s remedy in respect of any other breach by commercial tenants remains unaltered.
Faced with a tenant in financial difficulties, who is genuinely unable to meet their rent obligations, there are a number of sensible and reasonably straightforward steps that a landlord can and quite possibly should take now to place themselves in the best possible position in the months ahead.
For advice contact Jeremy Ferris firstname.lastname@example.org tel: 01227 763939