COVID-19: Restrictions on aggressive rent collection – relief for commercial tenants?

24.04.2020

On 23 April 2020, the Business Secretary, Alok Sharma, announced further support to tenants of commercial premises in England, Wales and Northern Ireland by adding to the current moratorium against forfeiture of business tenancies in accordance with section 82 of the Coronavirus Act 2020 (the Act).

These new emergency measures, which will be included in the forthcoming Corporate Insolvency and Governance Bill, are:

  1. The temporary ban on statutory demands and subsequent winding-up orders against commercial occupiers unable to pay rent to their landlord or business debts to their creditors. Statutory demands will often be served by landlords seeking to recover significant amounts of rent owing for more than three weeks and are used to commence insolvency proceedings against a debtor in the form of a winding-up petition on the basis such party is unable to pay its debts. Any winding-up petition claiming an occupier is unable to pay its debts must first be reviewed by the court to determine why. In the event an inability to pay is the result of COVID-19, the law will not permit petitions to be presented, or winding-up orders made; and
  2. New secondary legislation preventing landlords from using the Commercial Arrears Recovery (CRAR) process unless 90 days or more of unpaid rent are due. The CRAR procedure is a method of enforcement used by landlords to recover rent arrears relating to commercial property and allows a landlord to take control of a tenant’s goods then sell them in order to recover an equivalent value to the sum owed.

This new legislation will be in place until 30 June 2020, with such period capable of extension in the same manner as the ban on forfeiture, pursuant to section 82(12)(b) of the Act.

It is clear that the primary aim of these new measures is to safeguard jobs and protect an already under pressure high street, with retail sales falling a record 5.1% in March. There has been a steady rise in landlords seeking to take enforcement action against their tenants and a number of high profile occupiers such as Boots, Poundstretcher and Travelodge have been affected.

In acknowledging that businesses of both landlords and tenants are under intense scrutiny at present, these measures form part of a series of ‘pain sharing’ arrangements, with the result that tenants may lawfully withhold rents due to the impact of COVID-19 and landlords can rely on the government’s support package for businesses and workers (which include the recent expansion of the Coronavirus Business Interruption Loans Scheme).

For landlords, the tenant protection afforded by these new measures could be seen as a step in the wrong direction and discourage some occupiers from entering into an open and honest discourse on the payment of lease rents – this must be balanced with the objective of the majority of tenants who intend to keep paying such rents so far as possible but are not receiving any revenue to do so. Many in the retail industry are calling for a more robust approach from the government to ensure occupiers do not abuse these concessions and withhold rent entirely, seeking to frustrate the intention of the legislation. The government has further recognised the demands on landlords and has committed to working with banks, investors and institutional lenders to develop a policy for tackling delayed loan repayments following the joint guidance issued by The Financial Conduct Authority, Financial Reporting Council and Prudential Regulation Authority.

If you would like to discuss the impact of COVID-19 on your commercial property, please contact a member of the Bristows Real Estate team.

Giles Davy

Author

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