Emergency rules brought in as a result of the COVID-19 pandemic have provided commercial tenants with new protections.
The financial impact of the COVID-19 pandemic, and the consequent lockdown restrictions introduced by the UK government in March 2020, has been particularly severe on commercial tenants, especially those in the retail and hospitality sectors. Recognising these unprecedented difficulties, the UK government introduced emergency regulations – primarily, the Coronavirus Act 2020 (‘the Act’) – intended to offer some protection and relief to struggling tenants.
Under these emergency rules, landlords are severely restricted in the remedies they may use against tenants who inadvertently fall into rent arrears as a result of reduced income during the pandemic. These restrictions have been in place since March 2020 and the UK government recently announced that they will be extended to the end of March 2021.
What are landlords currently restricted from doing?
Many of the traditional remedies available to landlords when tenants are in arrears of rent are currently not available at all. This means that:
- Landlords are unable to forfeit a commercial lease and take back possession of the premises, even if the lease contains a forfeiture clause. Ordinarily, if a tenant is in rent arrears for a defined period of time, a landlord can take back possession of the premises by obtaining a court order or by instructing bailiffs to change the locks (known as ‘peaceable re-entry’).
- Landlords are unable to use the Commercial Rent Arrears Recovery (CRAR) procedure. This procedure allows a landlord to enter the premises and take control of tenant’s goods to cover the value of rent arrears (if an appropriate notice is served and at least 7 days’ rent is owed).
- Landlords are unable to demand payment of rent arrears by issuing a statutory demand pursuant to the Insolvency Act 1986. A statutory demand can ordinarily be served on a tenant who owes at least £750.00 in arrears (rent or other sum due under a lease), and the failure of payment by the tenant within 21 days allows the landlord to present an application to wind up the tenant company.
The above are, traditionally, the most commonly used mechanisms for the recovery of rent arrears by landlords. Their unavailability has forced landlords to consider agreeing to bespoke arrangements with individual tenants. Such agreements can provide for gradual repayment plans which reflect the [grim] reality faced by many commercial tenants, and, in some rare cases, cancellation of rent arrears or rent payments altogether.
What are landlords currently not restricted from doing?
Most notably, landlords can still seek to recover rent arrears (and other sums due under the lease) from tenants through court proceedings. This is not an attractive option for many landlords as it can often take a long time to obtain a final court order and to enforce such an order, and as it involves greater expense than some of the above-mentioned remedies. However, this does leave some tenants exposed, especially those who have failed to make much progress in agreeing to a repayment plan or other arrangement with the landlord.
Depending on the circumstances, landlords may be able to draw down upon rent deposits to settle any arrears or recover arrears from guarantors. This will only be possible in cases where arrangements were made to provide for a rent deposit or a guarantee agreement. Importantly, the remedy of forfeiture is still available to landlords in respect of other breaches of the lease (e.g. failure to comply with repairing obligations).
Where does all of this leave tenants in the future?
To date, the government has extended the above rules on several occasions. Most recently, the UK government announced an extension of these rules from 31 December 2020 to the end of March 2021. Crucially, however, the government has indicated that this is likely to be the “final” extension, providing an opportunity for landlords and tenants to come to arrangements on unpaid rent within the next three months where such arrangements have not already been agreed. Housing Minister, Robert Jenrick, said that “it is critical that landlords and tenants across the country use the coming months to reach agreements on rent wherever possible and enable viable businesses to continue to operate”.
This means that, come 1 April 2021, if no further legislative protection is put in place, the remedies which are not presently available to commercial landlords will be accessible once again – in particular, the ability of a landlord to forfeit a lease and take back possession of its premises will be a significant concern to many tenants who may still be in arrears of rent.
While the recent extension provides much needed relief for commercial tenants over the coming winter months, it is vital for tenants to use this time to engage with their landlords with the view to seeking to make arrangements for any unpaid or future rental payments (if they have not already done so). Many landlords will no doubt wish to continue positive relationships with their valued tenants (irrespective of the current and any future rules), but many may now have their eyes firmly on the clock.
