Coronavirus: Advice for Landlords of Commercial Property

Requests from commercial tenants for rent holidays due to a drop in business caused by the coronavirus pandemic have become commonplace. As the lockdown continues or even as we return to the ‘new normal’, we can expect that tenants will increasingly try 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 new law?

Section 82 of the Coronavirus Act 2020 (“the Act”) which was 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) prior to 30 June 2020. The Act gives the Government power to make future extensions of this moratorium on forfeiture beyond 30 June.

In response to what were perceived as “aggressive tactics” used by landlords, on 23 April the Government announced further measures including a temporary ban on the use of statutory demands and winding up orders for non-payment of rent. Again, the moratorium will apply until 30 June 2020 initially, with power to extend the forfeiture moratorium.

So can landlords use any other direct means to claw back arrears from a tenant?

Normally 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 regulations announced on 23 April landlords will be prevented from using CRAR unless they are owed at least 90 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 much 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 30 June. 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 on 23 April is to preserve businesses so that when we come out of the 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 June. 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 – Telephone: 01227 763939.