Further Government Support for Commercial Tenants

Our previous updates covered the government’s temporary restriction against forfeiture and highlighted the potential for it to go further in protecting commercial tenants by introducing legislation to limit the availability of other insolvency procedures available to landlords such as Commercial Rent Arrears Recovery (“CRAR”) and debt claims.

In a recent update the government has said that new measures will be included in the Corporate Insolvency and Governance Bill to prevent the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions (made between 27 April 2020 and 30 June 2020) where the tenant’s inability to pay is as a result of COVID-19. Secondary legislation is also being enacted to prevent landlords exercising CRAR to recover rent arrears where less than 90 days’ rent is owed. These new measures are expected to be in force until at least 30 June 2020 but can be extended in line with the temporary suspension on forfeiture.

With the onus being on landlords to demonstrate that the tenant’s inability to pay the rent is not as a direct result of COVID-19 it will be interesting to see how these measures will work in practice. Landlords are going to struggle to demonstrate that a tenant’s inability to pay its debts are not a direct result of COVID-19 without access to tenants’ broader financial information and even where they have such information and the petition is allowed its unlikely to be heard by the court for at least three months.

Whilst the above gives some comfort to tenants worried about their landlords exercising aggressive debt recovery tactics the government is still advising all tenants to pay their rent where they can afford to do so and for both landlords and tenants to cooperate in the spirit of fair commercial practice to agree a way forward.