Landlords exploiting loopholes in Government protection for commercial tenants

In our previous update, Natalie Ball outlined the government policy under the Coronavirus Act 2020 (CVA) to protect commercial tenants from having their premises taken back or ‘forfeited’ by their landlords for non-payment of rent.

The Department for Business, Energy and Industrial Strategy said: ‘In these exceptional times, we urge landlords to act in a socially responsible way, exercising judgement and discretion with their tenants.’

Many landlords have been exemplary; offering rent reductions and rent holidays. Unfortunately, a few landlords are not entering into the spirit of the CVA, and the BBC reported this week some gym and leisure centre tenants are possibly facing eviction during the coronavirus pandemic over non-payment of rent.

The CVA aims to protect commercial tenants, and places a ban on landlords forfeiting commercial leases for non-payment of rent during the relevant period (currently 26 March 2020 to 30 June 2020 (unless extended)). Rent includes all sums the tenant is liable to pay under the lease including the annual/basic rent as well as contributions to service charge and insurance. A tenant’s inability to pay does not need to be a direct result of COVID-19 and applies regardless of the reasons for non-payment.

The Act restricts the landlord's ability to recover possession during the ‘relevant period’ where the right to re-enter is due to non-payment of rent, although the landlord’s rights are restored once the relevant period expires.

The nuance of the CVA is important:

• it is not the case that a business cannot be forced out of its premises if it misses a payment in the next three months (it could still be forced out after the three month period)
• however a business cannot be forced out of its premises in the next three months if it misses a payment.

The CVA doesn’t stop time running for the accrual of late payment interest on any arrears that fall due.

In addition, the CVA protections do not affect the landlord's right to take up other actions against their tenant for non-payment of rent as the Act only suspends the landlord’s right to forfeit; not the tenant’s obligation to pay rent.

Landlords may look to call on rent deposit deeds or exercise their powers against a guarantor. Some may go further and threaten other actions against tenants including;

• Money Claim: the landlord can still issue court proceedings against the tenant for recovery of rent arrears and/or other sums owing under the lease. If successful in obtaining a money judgment against the tenant, the landlord will have the usual range of enforcement measures available to him through the court;
• Statutory Demands: if the rent arrears are not disputed, the landlord could serve a statutory demand on the tenant which allows the tenant 21 days to pay the sums due. If the tenant fails to pay within 21 days, the landlord can file and serve a winding up petition.

The Government may introduce legislation that limits the availability of insolvency procedures during the pandemic.  Also in practice, there may be difficulties during the COVID-19 outbreak in terms of issuing claims, serving proceedings, listing hearings, and obtaining and enforcing judgments

• Commercial Rent Arrears Recovery (‘CRAR’): the landlord does not need to go to court and can take steps to take control of the tenant’s goods under the CRAR regime. In theory, the landlord can serve notice on the tenant confirming the date their authorised agent will visit the premises to seize goods to the value of the rent arrears. There is hope for tenants that whilst we are in lockdown it may be difficult for landlords to exercise CRAR as the premises in question should be closed.

Unless the relevant period is extended, all unpaid rents will become enforceable by forfeiture in three months’ time, when quite possibly the trading environment for tenants will not have significantly improved.

We would suggest it is still sensible for landlords and tenants to agree commercial terms between them for dealing with the March 2020 quarter’s rent, including:

1. what will and will not be paid,
2. when it will be paid,
3. whether interest will accrue; and
4. what rights the landlord will give up in the meantime

We will of course be monitoring the situation and will keep you updated when we hear more.

These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.