We are now less than one month away from 24 June which, for many commercial tenants, is the due date for their next quarter’s rent.
The Government has introduced temporary legislation to stop landlords taking enforcement action against tenants but those provisions, unless extended, will run out at the end of June. This would leave many tenants, particularly in the retail, leisure and hospitality sectors owing all or the majority of the previous three months’ rent, plus the next three month’s rent, having had little or no income to finance their businesses since the beginning of the lockdown.
The Corporate Insolvency & Governance Bill has now been published which, in short, will restrict the right of creditors, including landlords, to collect debts through Statutory Demands and presentation of Winding Up Petitions. We will publish a more detailed article on the proposed legislation soon.
However, that does not mean that the rent is not due and so the debts of many tenants continue to accumulate. Therefore, the problem of not having sufficient income during the last few months to cover fixed outgoings such as rent remains for many tenants.
It’s also an issue for landlords and those providing the finance. If tenants cannot pay, then there is always a risk that landlords will take enforcement action. If landlords do not get paid, they run the risk of defaulting on their loans.
Whilst there has been Government support through grants for smaller businesses, there appears to have been little support for larger businesses or major employers, many of whom do not have sufficient resources to meet such a large gap in their finances. The Government has said it will not stand by and let businesses fail but, as my mother used to say, fine words butter no parsnips.
There remains enormous uncertainty as to the viability of many businesses and, as a result, the ability of landlords to service loans. As has been said before, the furlough scheme has kept people in employment during this period but if the companies that they work for cannot pay the rent and go under then that significant support may have been squandered. The need for the Government to seriously consider a scheme such as the Furlough Grant Scheme or the National Time Out scheme which we referred to in a previous article is becoming more urgent so that many businesses can survive.
Presently, the Government’s only intervention in this regard is the publication of guidance on responsible contractual behaviour which has absolutely no legal effect at all but effectively asks the various parties to contracts (including leases) to cooperate. As you will know from your own experiences, there are people who will play nicely but there are others who will not. The fear is that the actions of the few could have a devastating effect on everyone else if the Government does not address the situation soon.
Another moratorium on legal action, kicking the can down the road again, will not work. At some point, the accumulated debts will have to be paid unless the Government takes action to address the issue.
Without the necessary intervention, landlords and tenants will have to cooperate like never before to avoid many insolvencies, foreclosure and so on. In these challenging times, it seems there may be less demand for shiny new offices as we have all discovered we can work from home and remain safe. If that is the case, the last thing landlords want is to lose is their current tenant, but they will want that tenant to be paying rent so they too can meet their commitments. Should this come to pass, our Commercial Property team are well placed to advise both landlords and tenants on the options available to work together to come out of this situation intact.
If coming to an arrangement proves difficult, our Mediation team can explore opportunities to encourage landlords, tenants and funders to work creatively together in finding innovative solutions that address the situation we find ourselves in.
Finally, if all else fails, our Dispute Resolution team can assist in bringing or defending claims.
