Commercial tenant rent arrears update

Our previous updates on 24th March 2020 and 24th April 2020 reported that under The Coronavirus Act 2020, landlords were banned from forfeiting commercial premises either by the issuing of court proceedings or by using peaceful re-entry and changing the locks for rent arrears. Further updates have now been issued, as Rob Winder explains

Extension to the ban on commercial lease forfeitures for rent arrears

The Government has amended the Coronavirus Act to extend the time period for suspension of the forfeiture evictions from 30th June 2020 to 30th September 2020, meaning no business will be forced out of their premises if they cannot pay their rent. This amendment will cover the “usual quarter day” payments which are due in many leases on 24th June 2020 and 25th September 2020.

Ban on Statutory Demands

Due to the increased number of Statutory Demands being issued against Commercial tenants unable to pay amounts owed under their lease due to Coronavirus, the Government is seeking to include legislation in the Corporate Insolvency and Governance Bill (which was published on 20th May 2020) that provides a temporary ban the use of Statutory Demands and subsequent Winding Up Orders where a company cannot pay their rent due to the Coronavirus.

The new legislation was to be in force until 30th June or 1 month after the Act was brought in whichever was the later. However, there is a real possibility that the temporary ban on both the use of Statutory Demands and subsequent winding-up petitions being issued, where a company cannot pay its debts due to the effects of Coronavirus, will be extended until 30th September 2020, to bring it into line with the moratorium on commercial lease forfeiture.

Unusually this legislation will be retrospective, and will therefore mean that no tenant should be forced from their premises because of an inability to pay their rent due to the effects of the Coronavirus prior to the enactment of the Bill.

Commercial Rent Arrears Recovery (CRAR)

In addition to the above, the Government has also extended the period under which the Commercial Rent Arrears Recovery (CRAR) can be used from a minimum of 90 days of unpaid rent, to 189 days of unpaid rent. The time period for which this measure is in force will also be extended from 30th June to 30th September in line with the other measures being brought in.

The premise of all of the new regulations is to prevent any businesses from being closed down whilst being either unable to trade or because of an inability to pay rent due to significant reduction in income because of the measures brought in to try to slow the spread of Coronavirus. We have however seen that there is a growing feeling from landlords that some of the measures go too far and that larger businesses, some whom could pay, are not and using the protective measures as to their advantage. Whilst this may be true in some cases, it is pleasing to see many instances of landlords and tenants working collaboratively to agree a compromise and maintain good working relationships.

Code of Practice

On 19 June 2020, the Government published a Code of Practice for commercial property relationships during the COVID-19 pandemic. The Code is voluntary and has been developed in collaboration with the retail, hospitality and property sectors to provide clarity for businesses when discussing rental payments and to encourage best practice so that all parties are supported. The Code, and the signatories' support of it, will apply until 24th June 2021.

The Code acknowledges that legally tenants are liable for covenants and payment obligations under leases, unless this is renegotiated by agreement with landlords. Tenants who are in a position to pay in full are encouraged to do so. However, tenants who are unable to pay in full should seek agreement from landlords to pay what they can. Both parties should act in good faith, reasonably and flexibly. The Code suggests various options for new rental arrangements and considers payment of service charge. The Code states that it applies to all commercial leases held by businesses that have been seriously negatively impacted by the COVID-19 crisis, although it is expected that the hospitality, leisure and parts of the retail sectors will need it most. It notes that businesses within the agricultural sector may also want to consider the Code principles, while acknowledging the differing legal framework for agricultural tenancies.

We would strongly urge all Commercial Landlords and Tenants currently facing difficulties to read the code a copy of which can be downloaded here.

As always, the best advice is for landlords and tenants to keep the lines of communication open both now and throughout the unprecedented crisis, we now all face and to be realistic.

If you would like to speak to someone within our Commercial Property or Dispute Resolution teams please contact our offices on 01228 552222 or e-mail hello@burnetts.co.uk . Please note that both telephone and video appointments can be arranged.