Since the government introduced legislation at the beginning of the pandemic, landlords have been severely restricted in taking action against commercial tenants for lease breaches, in particular for non-payment of rent.
Eighteen months have now elapsed and the government has provided a number of recent updates to legislation concerning landlord remedies.
Here, commercial property expert Eleanor Longworth shares an overview of the latest updates and explores options to help commercial landlords take action against defaulting tenants.
Forfeiture
The Coronavirus Act 2020 originally restricted a landlord’s ability to recover possession of commercial premises following non-payment of rent from March 26, 2020 to June 30, 2020, however this has now been extended with the current restrictions in place until March 25, 2022.
For the time being a landlord cannot forfeit a lease for non- payment of rent, regardless of whether the arrears pre-date Covid, but there is no express restriction on a landlord’s ability to forfeit a lease for other breaches.
Landlords may therefore be able to secure possession of the premises, although Covid may still be a relevant consideration in this process.
Forfeiture can be a complex process and waiver of the right is usually a crucial consideration. The Coronavirus Act provides that landlords’ actions will not currently waive the right to forfeit for non-payment of rent, unless the landlord expressly waives this. From March 25, 2022, landlords wishing to preserve the right to forfeit, will need to think very carefully about waiver.
Covid is of course unprecedented and it is unclear how the courts will approach forfeiture once the restrictions are lifted. Landlords are therefore advised to err on the side of caution.
If you are considering forfeiture, it is vital you take early advice so that you can assess the prospects and put a strategy in place.
Other action
The Coronavirus Act does not technically prevent a landlord from taking action to recover debts accruing under a lease.
For example, a landlord could still issue court proceedings for debt or damages, exercise commercial rent arrears recovery, draw down on a rent deposit, bring claims against guarantees or serve a statutory demand. However, some of these remedies remain heavily restricted.
Court proceedings
Recent judicial decisions have largely removed concerns about landlords pursuing arrears by issuing debt claims, with the judgments in those cases re-affirming debt recovery proceedings as a continuing remedy for landlords.
This may be particularly useful where landlords know that tenants have assets available to enable enforcement of a judgment, such as by way of securing a charging order over property.
The courts have however, been significantly impacted by Covid, meaning there is likely to be an element of delay. Therefore, this remedy may not presently be a quick resolution. Landlords would also have to consider a tenant’s ability to pay the judgment debt, even if judgment was awarded.
Commercial rent arrears recovery
Commercial rent arrears recovery (CRAR) remains available but there are restrictions on the amount of rent that must be outstanding before a landlord can exercise CRAR.
These restrictions are also in place until March 25, 2022, with the minimum net unpaid rent currently set at 554 days.
Insolvency
The Corporate Insolvency and Governance Act 2020 came into force last year, which prevents landlords from petitioning to wind up a company, presently until September 30, 2021,unless there are reasonable grounds for believing that Covid has not had a financial effect on the company, or that the company would not have been able to pay in any event.
From October 1, 2021 to March 31, 2022, more limited restrictions will apply. Landlords should note however, that they are still prevented from petitioning against corporate tenants if the arrears are unpaid due to the financial impact of Covid. The threshold has also been increased to £10,000.
Given that the vast majority of tenants in the retail, hospitality and leisure sectors have been closed for large periods since 2020, this is likely to be relatively easy for many tenants to demonstrate.
There are no similar restrictions for bankruptcy, although individuals may seek protraction under the Debt Respite Scheme (Breathing Space), meaning that efforts to enforce debts against individuals can still be paused.
Given the Government’s calls for a collaborative approach between landlords and tenants in relation to Covid-related rent arrears, if a business has had to close, landlords may be required to waive an element of the arrears or enter into a payment plan.
If an agreement cannot be reached. an arbitration scheme is proposed. However, it is not yet clear how this is to be implemented in practice. Further details are shortly expected from the Government.
Restricted remedies
It seems clear that for the time being a landlord’s options remain restricted. Landlords and tenants may still be able to work together to find a solution though. For example, payment terms could be agreed, or a surrender negotiated, potentially serving the commercial objectives of both parties.
Landlords and tenants are urged to put a plan in place in readiness for relaxation of the restrictions and take advice at the earliest opportunity in order to protect their businesses.
Eleanor Longworth is an associate solicitor based at WHN’s Bury office. Eleanor has expertise in a wide range of property litigation matters, including long leasehold dispute resolution matters.
If you need help on any property legal matter, please contact Eleanor on 0161 761 4611 or email eleanor.longworth@whnsolicitors.co.uk
