Real Estate / TAG Property

Extension of Governmental Protections of Business Tenants: What Can Landlords Do?

The Government has revised certain aspects of the processes it has put into place in order to protect businesses that rent premises from the various enforcement remedies available to landlords. This is regardless as to whether they are contractual provisions of a lease and/or a statutory entitlement.

The purpose of this note is to update landlords on the current situation and to review their options.

The Current Restrictions

  • The Coronavirus Act 2020 will be amended to extend the Moratorium on forfeiture for non-payment of rent from 30 June 2020 to 30 September 2020.
  • The current changes to the Commercial Rent Arrears Recovery (CRAR) will also be extended to 30 September 2020 and will also now prevent landlords using CRAR unless at least 189 days’ rent is outstanding.
  • The Corporate Insolvency and Governance Act 2020 has now been enacted to extend the ban on the use of statutory demands and winding-up petitions where the company says it cannot pay its bill as a result of COVID-19 related issues.
  • The current 90 days stay on possession proceedings in respect of all proceedings brought under the relevant Civil Procedure Rule and all proceedings to enforce an order for possession. This stay was to have expired on 25 June 2020, but has been extended to 25 August 2020. It will apply to proceedings that were stayed immediately before 25 June 2020 and to proceedings commenced between 25 June 2020 and 22 August 2020. The stay will not apply to a claim against trespassers, to which the appropriate rule is relevant. It will not apply to an application for an interim possession order. It will not apply to a claim for an injunction in appropriate circumstances.

The Voluntary Code of Practice to Guide Landlord and Tenant Rent Arrangements during COVID-19

The government has published a voluntary Code of Practice for managing commercial property relationships during the COVID-19 pandemic. The Code applies to commercial property relationships and has come about following consultation with Royal Institute of Chartered Surveyors, British Chambers of Commerce, British Property Federation, British Retail Consortium, UK Hospitality and Commercial Real Estate Finance Council. The Code is not a statutory instrument, but has been endorsed by the organisations above, It is intended to apply until 24 June 2021 and promote a spirit of cooperation between landlords and tenants.

It is supposed to address:-

  • concerns of tenants who are worried about their obligation to pay rent in the face of reduced income; and
  • those of the landlord facing reduced rent and their own pressures in respect of making loan repayments and the rent they may have to pay.

It states that:

  • Tenants are supposed to pay their rent or as much as they can.
  • They should prioritise insurance and service charge over occupational rent and try to pay this in full.
  • Tenants shall provide appropriate financial information where seeking reduction in order to demonstrate transparency.
  • Landlords should grant concessions to affected tenants to the extent they can. They should also consider their own financial commitments. If they refuse to grant a concession, they should provide a reasonable explanation.
  • Service charges should be reduced where the service costs are reduced by lack of use of the property.
  • Any variations to leases as a result of these type of discussions need to be properly recorded. Where appropriate, they should contain the necessary termination provisions so that the original terms can be re-implemented when appropriate.

Landlord Options

  • There is nothing to prevent the landlord from issuing proceedings for non-payment of rent and enforcing any judgment they may obtain. It remains to be seen how the code of practice might impact on this but, ultimately, if there is a contractual entitlement to claim non-payment of rent, interest and costs then in the absence of any statutory prohibition this option is still available.
  • Landlords can still pursue former tenants and guarantors. For more information, please view our insight here.
  • In the appropriate circumstances, landlords can draw down on deposits. It is important to obtain advice on the wording of the rent deposit deed, as there will be situations (including where a tenant has gone into administration or liquidation) where the landlord may not be entitled to do so.
  • The landlord can use CRAR where arrears of rent are older than the 189 days.
  • If the landlord can demonstrate that the tenant’s inability to pay arrears of rent has nothing to do with COVID-19, then they may be able to serve a statutory demand or present a winding-up petition. Advice should be taken on this point.

If you would like any advice on anything mentioned in this article, please contact David Moroney on 0161 838 7866 or email davidmoroney@kuits.com.

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