More protection coming for commercial tenants
Hot on the heels of the Coronavirus Act 2020, which came into force on 25 March 2020, the government has announced more limitations on commercial landlords’ enforcement options to help tenants affected by the situation caused by COVID-19.
Having already limited a commercial landlord’s right of re-entry for non-payment of rent in the period up to 30 June 2020 (subject to extension), the government has now turned its attention to two other enforcement options available if a tenant is in arrears: the service of a statutory demand and Commercial Rent Arrears Recovery (“CRAR”).
On 23 April 2020, the Business Secretary, Alok Sharma, set out new measures aimed at encouraging landlords and tenants to work together to reach agreements on debt obligations.
Statutory demands threaten winding up proceedings if arrears in excess of £750 are not paid within 21 days. Whilst this option was still available to landlords with arrears of rent or other sums under their tenant’s lease, the Companies Court had already, from 23 March 2020, adjourned all winding-up petitions for a minimum of three months.
The Business Secretary has announced a temporary ban to the use of statutory demands in the period from 1 March 2020 to 30 June 2020 and winding up petitions presented from Monday 27 April 2020, through to 30 June 2020, where a company cannot pay its bills due to coronavirus.
These measures are to be included in the Corporate Insolvency and Governance Bill 2020.
Much will depend on the drafting of the new legislation but this may cover all winding-up petitions presented at the Court. A company’s inability to pay its debts may be reviewed by the Court before the petition is issued, not when it is heard. This may, therefore, cover non-landlord creditors, although the announcement only refers to commercial tenants.
Like the Coronavirus Act 2020, these measures are to be in force until 30 June 2020 but, again, they may be extended further.
CRAR is 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 principal 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 practical operation of CRAR was already challenging.
Government is said to be laying secondary legislation preventing landlords using CRAR unless they are owed 90 days of unpaid rent.
Whilst these measures will no doubt be welcomed by tenants, smaller commercial landlords with debt to service are likely to take a different view. However, some enforcement options have yet to be restricted, such as Court proceedings for breach of contract, utilising rent deposits, claims against guarantors and serving notice on sub-tenants under section 81 of the Tribunals, Courts and Enforcement Act 2007.
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 a defaulting commercial tenant, please contact Simon Hartley.
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.