Coronavirus Act 2020: Landlords’ options on commercial tenants’ insolvency
The Coronavirus Act 2020 (‘the 2020 Act’) came into force on 25 March 2020 and sets out provisions aimed to assist commercial tenants affected by the situation caused by COVID-19.
Section 82 of the 2020 Act will be of interest to commercial landlords and tenants as it provides that in relation to a business tenancy no right of re-entry or forfeiture for non-payment of rent may be enforced in any way before 30 June 2020 (the end of the “Relevant Period”). This delays any forfeiture action against a commercial tenant but does not prevent any other remedies for breach of the lease being pursued, nor is the right to forfeit lost permanently. The provision applies to England and Wales and currently expires on 30 June 2020, although this can expressly be extended.
It is to be seen how certain parts of section 82 of the 2002 Act will be interpreted and applied by the Courts. However, at this stage, key points to note include:
- The term ‘rent’ includes any sum a commercial tenant is liable to pay under its lease, such as service charges or insurance premiums.
- Leases that are under 6 months in length, tenancies at will and other interests that would normally fall outside the provisions of Part 2 of the Landlord and Tenant Act 1954 (“the 1954 Act”) will not be covered by the new provisions.
- Leases that would ordinarily benefit from the security of the tenure provisions in the 1954 Act, but which have been expressly ‘contracted out’ by the parties, will still be covered by the new provisions.
- During the Relevant Period, landlords will be unable to waive the right to forfeit the lease, unless the landlord gives an express waiver in writing.
- A commercial tenant cannot be evicted before the end of the Relevant Period in any existing forfeiture proceedings in the Courts.
Landlords still have recourse to the other usual remedies, such as Commercial Rent Arrears Recovery (“CRAR”) a statutory procedure that allows landlords of commercial premises to recover rent arrears by taking control of the tenant’s goods and selling them. CRAR can only be used to recover principle rent and not insurance or service charges (or any other sums due under the lease, even if they are reserved as rent). Generally, only landlords of commercial premises, where the tenant remains in occupation of those premises, can use CRAR. Given the current lockdown, the operation of CRAR may be problematic at this time.
Whilst issuing a debt claim against a defaulting tenant or serving a statutory demand on such a tenant as the first stage of a winding up process are still options, most Court proceedings are likely to be delayed due to the COVID-19 pandemic.
Statutory demands threaten winding up proceedings if the arrears are not paid within 21 days. This threat is often enough to elicit payment, however, in the current circumstances some tenants may simply be unable to pay. If a company is forced into insolvency which may have survived if it had been allowed more time to pay, this might reduce the chances of recovering the full debt. Furthermore, the Companies Court has, from 23 March 2020, adjourned all winding-up petitions for a minimum of three months.
For further information or advice on what to do if you are a commercial tenant unable to comply with the terms of your commercial lease due to the COVID-19 pandemic, or you are a landlord with an insolvent commercial tenant, please contact Simon Hartley or Jane Emberton.
This briefing is for guidance purposes only. RadcliffesLeBrasseur LLP accepts no responsibility or liability whatsoever for any action taken or not taken in relation to this note and recommends that appropriate legal advice be taken having regard to a client's own particular circumstances.