Commercial landlords – an update on the present position regarding the recovery of rent

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In recent months, commercial tenants and landlords alike have been confronted with the challenges brought about by the lockdown and its impact on generating revenue.

Businesses have faced severe restrictions on their activities and, in many cases, they have had to shut down to comply with the national or, more recently, local lockdowns. This had led to income shortfalls which, in turn, has left some commercial tenants struggling to pay rent to their landlords.

As the pandemic continues, the Government has responded by putting in place significant measures to protect commercial tenants against debt recovery action and limit the ability of landlords to recover outstanding rent.

This approach has been underpinned by the introduction of a voluntary Code of Practice which commercial tenants and landlords are being urged to follow to preserve amicable relationships during the current crisis. Landlords and investors are being asked to work with any tenants experiencing short-term financial difficulties to seek a way forward. At the same time, tenants are encouraged to make payments as and when they can afford to do so.

The usual methods of rent recovery implemented by commercial landlords have been severely restricted:

Forfeiture

Under S82(1) of the Coronavirus Act 2020, where non-payment of rent has occurred, the right of landlords to re-enter a commercial property and the right to forfeit under a business tenancy has been suspended until 31 December 2020. Originally intended to run until 30 June, this grace period has already been extended on two occasions.

Winding-up petitions

The Corporate Insolvency and Governance Act 2020 introduced restrictions on presenting winding-up petitions.

Whilst landlords are still permitted to serve statutory demands, their impact is somewhat limited as a winding-up petition cannot be presented before 31 December 2020 where a company cannot meet its financial obligations due to the COVID-19 pandemic.

However, winding-up petitions can be still be issued on reasonable grounds, and based on material evidence, where the pandemic is not the root cause of the financial difficulty or if the debt would have arisen regardless of the public health emergency.

Commercial Rent Arrears Recovery (CRAR)

Commercial landlords can still pursue the CRAR option, although further restrictions have been introduced. The period of rent arrears required to implement CRAR has been greatly extended, as outlined below:

  • From 29 September 2020 to 24 December 2020 – minimum of 276 days rent overdue
  • From 25 December 2020 – minimum of 366 days rent overdue

Is there anything you can do?

Whilst there are limited options for commercial landlords, the following courses of action also remain open:

  • Drawing down on a rent deposit
  • Pursuing a guarantor
  • Pursuing a former tenant
  • Debt recovery claim
  • Seeking rent directly from subtenant
  • Forfeiture on other grounds (not unpaid rent)