Commercial landlords will no doubt be aware of the restrictions introduced in March 2020, to protect business tenants, during the Coronavirus pandemic. These restrictions prevented landlords from terminating leases by changing locks, sending around enforcement agents or winding-up business tenants which were in debt.
On March 25, 2020 the Commercial Rent (Coronavirus) Act 2022, (the Act) came into force, which made a range of remedies again available to landlords.
Associate solicitor Eleanor Longworth from Woodcocks Haworth and Nuttall Solicitors’ commercial property team, explains the difference between protected and non-protected rent, what options are available to landlords, and the current trends.
As Daniel Long explains in our article on how the Commercial Rent (Coronavirus) Act 2022 can help landlords recover rent arrears, a binding arbitration process was introduced to resolve disputes between landlords and tenants, where businesses were forced to close during the pandemic. However, for non-protected rent, various remedies are now available to landlords.
What is the difference between protected and non-protected rent debt?
The Act contains specific provisions however, in summary, protected rents include rent, service, insurance, interest and VAT built up under business tenancies from March 21, 2020, to the date they were no longer subject to forced closure or certain other restrictions due to the pandemic. The protected period may end on July 18, 2021 or potentially earlier, depending on the sector in which the business operates.
If the arrears do not fall within the definitions of protected rent debt, the restrictions under the Act will not apply. Landlords will again have a range of remedies available to them.
Landlord remedies
Potential remedies available to landlords include debt recovery proceedings, exercising Commercial Rent Arrears Recovery (CRAR), drawing down on rent deposits, potentially turning to former tenants and guarantors, or forfeiting a lease.
Trends
Since the Act came into force and the restrictions for non-protected debt removed, we have seen an increase in enquiries from commercial landlords who want to understand the options available to them.
Many own properties where tenants have simply not paid rent despite continuing to trade throughout the pandemic.
In some cases, tenants have ceased operations and abandoned the premises, mid-lease.
In these cases, landlords are understandably considering their options, particularly in relation to how they can take control and obtain possession of their properties. This can be done by way of forfeiture.
What is forfeiture?
Forfeiture is a mechanism by which landlords can take possession of a property. In specific circumstances, commercial leases often give landlords the right to terminate them before the end of the contractual term, most commonly for non-payment of rent or other breaches of the lease.
For non-payment of rent landlords may be able to forfeiture a lease by changing the locks or issuing court proceedings. Both routes can be complicated, so it is important that landlords are aware of their contractual rights and obligations and how statute intervenes, before taking steps to re-enter premises. Failure to do so can leave landlords vulnerable to injunctive proceedings and damages claims. Professional advice should be taken from the outset.
Is forfeiture the best option?
Despite the frustration and financial loss landlords may experience due to the non-payment of rent, there are several points landlords should consider before forfeiting a lease. These include:
- An occupied property reduces the risk of break-ins, vandalism and squatters moving in as unauthorised occupiers bring with them further complications.
- Landlords may prefer to avoid having empty units in retail or business complexes as it may affect the ability to secure new lettings or retain existing tenants.
- Landlords may face liability for business rates.
In a prosperous market forfeiture may be of appeal to commercial landlords. Equally, forfeiture can be a useful tool if they plan to use the property for their own businesses or potentially re-develop it. Even if this is not the case and despite the considerations, landlords may feel that they have no other option if the relationship with the tenant has turned particularly sour.
Forfeiture can, therefore, be a useful tool for commercial landlords, however it must be approached cautiously and carried out correctly. This is to ensure landlords can achieve their objectives without the risk of potential court action or unwanted consequences.
Our guide to forfeiting commercial property leases, including the benefits and limitations, may help further.
It is important to seek specialist legal advice if you are considering the options available to recover rent and in particular, forfeiture. For more information contact Eleanor Longworth on 0161 761 4611 or email Eleanor at eleanor.longworth@whnsolicitors.co.uk
