The lockdown implemented on 23 March 2020 necessitated the closure of many businesses and this has undoubtedly put many commercial tenants under much financial stress as they struggle to meet their rental payments. The usual quarter days for rent payments fall in March and June and the current circumstances make it very difficult for many tenants to pay the rent with no immediate end to the lockdown in sight.
In the usual course of things, landlords would seek to forfeit the lease of the premises for non-payment of rent by changing the locks but between 25 March 2020 until 30 June 2020, forfeiture on the ground of non-payment of rent has been suspended. The right to forfeit still exists for any other breaches of the lease, even if these are linked to the pandemic but this process requires the tenant to be served with a notice giving it a reasonable period to remedy any breach.
Whilst most landlords and tenants are working together to seek to re-negotiate lease terms or implement temporary rent free periods/concessions, there are some landlords who are putting considerable pressure on their tenants to pay sums due under the lease which many simply cannot afford.
In order to alleviate these pressures, Alok Sharma, the Secretary of State for Business introduced temporary measures on 23 April 2020 to assist tenants facing financial hardship.
Service of Statutory Demands
Commercial tenants have been advised to pay what they can during the pandemic but for those that are struggling to pay rent, the government has temporarily banned the service of statutory demands between 1 March 2020 and 30 June 2020. In addition, petitions to wind up tenants may not be presented between 27 April 2020 to 30 June 2020. This means that landlords are unable to seek payment of the rental arrears during this period using the threat of winding up which could conceivably result in their own insolvency.
Commercial Rent Arrears Recovery
Legislation is also due to be announced to regulate the use of Commercial Rent Arrears Recovery (CRAR). The process of using CRAR involves landlords recovering rent arrears by instructing bailiffs to take control of their tenant’s goods with a view to selling them if the arrears are not discharged. However, the government has proposed limiting the use of CRAR unless the equivalent of 90 days’ rent remains unpaid. More clarification is required but it appears that landlords will not be able to use CRAR to recover modest arrears of rent.
The government has deemed it necessary to introduce these measures to allow more businesses to stay solvent and to prevent the further erosion of the retail offering on our high streets that will be caused by a spate of business failures. However, guidance issued by the government makes it clear that tenants must pay the rent that they can afford and should cooperate with their landlords.
The government has not announced a rent holiday for tenants and once the temporary measures are lifted it appears like landlords will be able to take steps to recover any rent arrears that have accrued during the lockdown. With this in mind, tenants might want to act in a way which preserves the relationships with their landlords in the longer term.
Please see this article for further advice and information on steps to take negotiate leases and perhaps seek recent concessions:
If you require advice, please contact our Commercial and Property Litigation Team on 0345 646 0406 or fill in our online enquiry form and a member of our Team will be in touch.