9 June 2020
Landlords and Tenants are facing unprecedented challenges during this pandemic. Billions of pounds due in rent went unpaid in the UK on the last quarter day. This article will look at whether or not Tenants are required to pay rent, how the Government’s interventions have impacted debt recovery and the position in light of The Corporate Insolvency and Governance Bill recently introduced to Parliament.
Do Tenants have to pay rent?
Many Landlords and Tenants have negotiated concessions including rent suspensions, rent free periods, reduced rents and other deals to suit their particular relationships.
It is highly unlikely a Tenant can rely on the rent suspension clauses in a lease. The trigger for rent suspension is usually physical damage to property and so unlikely to be triggered by Covid-19. The general consensus seems also to be that commercial leases have not been frustrated by Covid-19 and unless agreed otherwise rent is payable.
In practice some Landlords have been able to draw on rent deposits. Some opting to waive their entitlement to the deposit being topped up. Again, Landlords and Tenants have negotiated creatively to suit their circumstances.
This prevents landlords forfeiting lease for non-payment of rent. This applies until the end of June but may well be extended. Nevertheless, this does not change the fact rent is payable unless otherwise agreed.
Commercial Rent Arrears Recovery (CRAR) changes
CRAR is a mechanism to recover commercial rent arrears. The landlord sends a notice to the tenant. If the rent remains unpaid enforcement agents can seize the tenant’s goods and sell them. Ordinarily notice can be served if the tenant is in a minimum of seven days arrears. The Government have shown their commitment to assisting tenants by increasing this to ninety days arrears.
The Corporate Insolvency and Governance Bill
Because of Government intervention on forfeiture and CRAR outlined above, some Landlords’ have opted to present winding up petitions to collect the debts of corporate tenants.
The petition is presented to the Court. If the Landlord is successful, the Tenant company will be liquidated. To be successful the Landlord would have to show the Tenant cannot pay its debts. This is demonstrated by issuing a statutory demand, and if payment is not made within 21 days this is evidence that the Tenant cannot pay its debts.
The Corporate Insolvency and Governance Bill will prevent the presentation of winding up petitions where the statutory demand was served between 1 March 2020 and 30 June 2020 (or one month after the enactment of the bill, which ever is the later). The law will also stop petitions unless the Landlord can show he has reasonable grounds to show Covid-19 is not the cause of the Tenant’s financial problems.
Where are we going?
The Government have in effect paused or restricted the ability of Landlord’s to recover rental arrears. Whist many Landlords and Tenants have negotiated concessions, rent arrears is looming in the minds of many Tenants and Landlords alike.
If you would like to any legal advice on Commercial Rent Arrears Recovery or any other commercial Landlord and Tenant matters please contact Matthew Morris-Ashton, who is a solicitor working in our Commercial Property team, by calling 01256 854602 or by emailing [email protected]
Alternatively click here to go to our contact page.
During these difficult times our Town Gate office in Basingstoke is temporarily closed to visitors unless by prior appointment when meeting in person is essential. However, thanks to our lawyers being able to work remotely, Phillips remains fully open for business and can discuss your legal matters by telephone and video conference.
This article is current at the date of publication set out above and is for reference purposes only. It does not constitute legal advice and should not be relied on as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.
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