The coronavirus crisis has caused significant financial stress to a large number of businesses, especially those which have been forced to close, such as shops selling non-essential goods and businesses in the sports, entertainment and hospitality industries.
One of the key stresses for such businesses is the continuing obligation to pay the rent and other payments due under the leases of the premises from which they operate at a time when cash has stopped flowing into the businesses or reduced to a trickle.
FURTHER GOVERNMENT ASSISTANCE FOR TENANTS:
The Government states that whilst the majority of landlords and tenants are working well together to reach agreements on debt obligations, it has become apparent that some landlords have been using aggressive tactics to collect rent.
In order to protect such businesses, the Government has decided to take action to prevent this by:
1. Including in its Corporate Insolvency and Governance Bill a temporary ban on the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions (presented between 27 April and 30 June), where a company cannot pay its bills due to coronavirus; and
2. Laying secondary legislation preventing landlords from using Commercial Rent Arrears Recovery (CRAR) (the modern equivalent of taking distress for unpaid rent) unless they are owed 90 days of unpaid rent.
In an announcement issued on 23 April and updated on 25 April, the Government stated:
“This will further safeguard the high street and millions of jobs by helping to protect them from permanent closure during this time. However, while landlords are urged to give their tenants the breathing space needed, the government calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too”.
This comes on top of the measures enacted previously by Parliament in the Coronavirus Act 2020, which (as reported by my colleagues Catherine Burgess and Niten Chauhan on 31 March) makes the following temporary changes affecting landlords and tenants of commercial property:
- No business leases (with terms of 6 months or more) may be forfeited by re-entry until 30 June 2020 (which may be extended);
- Landlords cannot waive the right to forfeit for non-payment of rent (eg, by accepting payment of rent whilst there are outstanding breaches of lease) – this is intended to avoid landlords having to take drastic action to avoid losing their rights);
- All possession proceedings have been stayed and no orders for possession may be enforced until 30 June 2020 (which may be extended).
WHAT ACTION CAN LANDLORD’S STILL TAKE DURING COVID-19
However, at the present time, Landlords can still take the following action to enforce rent arrears:
- To issue Court proceedings to recover the arrears;
- To recover the arrears from a guarantor of the tenant’s covenants under the lease;
- To make a withdrawal from any rent deposit provided by the tenant; or
- Where there are 90 or more days of unpaid rent, following the Commercial Rent Arrears Recovery (CRAR) procedure with a view to seizing goods from the premises in order to discharge the rent arrears.
NEED ASSISTANCE:
JPC can not only provide help and guidance to both landlord and tenants of commercial property during these testing times but can also assist you with drafting any side letters and/or deed of variations to existing lease and rental agreements.
If you require any advice or assistance in dealing with the issues we have outlined above or more generally with your commercial property needs, please contact James Whiteley by email jmwhiteley@jpclaw.co.uk or by telephone 020 7644 7297 or contact him on LinkedIn or Steven Porter on sporter@jpclaw.co.uk or by telephone on 0207 644 6091 or contact him on LinkedIn.
