Section 82 of the Coronavirus Act contains provisions protecting business tenants from lease forfeiture due to the non-payment of rent. During the ‘relevant period’ (originally due to expire on 30 June, but since extended to 30 September), commercial landlords are unable to forfeit their tenant’s lease unless they give an express waiver in writing. Similarly, the use of Commercial Rent Arrears Recovery (CRAR) is restricted to cases where landlords are owed over 189 days’ unpaid rent (also until 30 September 2020).
Furthermore, under the recently passed Corporate Insolvency and Governance Act (CIGA), creditors are also restricted from serving statutory demands or winding up petitions until 30 September 2020.
The impact on commercial landlords
The aim of this legislation was to prevent the mass eviction of commercial tenants experiencing cash flow problems as a result of the crisis. But with so much focus on commercial tenants, have we forgotten about the impact on their landlords?
A survey published by the Scottish Property Federation found that over half the commercial landlords surveyed had been left with “serious or terminal” problems as a result of rent arrears(1) . Meanwhile, research from Remit Consulting revealed that just 63.3% of rents and 64% of service charge payments had been collected from commercial tenants a full 35 days after Q2’s rent collection deadline in June(2).
What are my options?
While it is undeniable that commercial landlords’ options are severely curtailed at present, certain avenues remain open to them.
- Forfeiture for a reason other than non-payment of rent
The current ban on forfeiture applies only to the non-payment of rent. Other breaches of the lease could still provide grounds for forfeiture, including tenant insolvency and illegal subletting.
- Recovery of unpaid rent from existing guarantors
If the tenant has a third-party guarantor, landlords may be able to recover rent arrears from them if the tenant is unable to pay. Landlords are advised to check the guarantee wording carefully; it may require landlords to take certain steps before pursuing payment in this way, or they may only be able to do so under certain circumstances.
- Court proceedings There is currently nothing stopping commercial landlords from commencing court proceedings to recover unpaid rent. However, this is currently likely to be a slow process, as courts have been operating on skeleton staff during lockdown and are likely to face huge backlogs in the coming months. Judges are also more likely to be sympathetic towards tenants due to the current situation.
- Rent deposit
A landlord may be able to use the tenant’s rent deposit to cover their next rent payment, allowing the tenant some breathing space and permitting them to pay the balance when their financial situation has improved. This is an example of compromise that improves the possibility of a good outcome for both parties, although it is not a solution for longer-term non-payment.
- Open, honest and collaborative discussion
On 19 June, the government published its Code of Practice for commercial property relationships during the COVID-19 pandemic. Signatories including the British Chamber of Commerce, the British Retail Consortium and the Royal Institution of Chartered Surveyors approved the Code, which encourages reasonable and responsible behaviour, a unified and collaborative approach and transparency in the dealings of both parties. The current restrictions imposed upon commercial landlords means that respectful and open collaboration is likely to be the best and most successful route forward at present.
Whether you are a landlord experiencing difficulties due to non-payment of rent, or a tenant seeking to come to a temporary agreement with their landlord, our specialist team of lawyers is at hand. We can help facilitate open and honest negotiations, allowing both parties come to a mutually beneficial agreement. To find out more, contact our Dispute Resolution team on LitigationDept@woodfines.co.uk.