Government acts fast to protect commercial tenants

As is now old news, the Government announced on 20 March 2020 that it was asking all cafes, pubs, bars, restaurants, nightclubs, theatres, cinemas, gyms and leisure centres to close that evening and not to reopen on 21 March 2020. These closures were described as “forced” by the Prime Minister the following day and legislation swiftly followed on 26 March 2020 confirming that many of these businesses were now effectively unable to operate. This of course was the government’s response to the Coronavirus pandemic and the lockdown which is still very much in force across the nation.

The impact of the closures has been significant for many business tenants who, with an inability to run their businesses and generate revenue have found it a struggle to pay their rent. Many business tenants faced the stark realisation that they could no longer afford the first quarter of rent which fell due only days after the announcement (25 March 2020) with the next quarter of rent due on 24 June 2020. However, with this in mind, the Government acted swiftly again and passed the Coronavirus Act 2020 (“the Act”) with Section 82 coming to many tenants’ aid, and suspending a landlord’s right to forfeit a commercial lease for non-payment of rent during the “relevant period”( being until 30 June 2020, with scope to be extended).

However, Section 82 arguably did not go far enough as a well-advised landlord was still able to commence insolvency proceedings against non-paying tenants through issuing statutory demands or winding up petitions and taking advantage of the Commercial Rent Arrears Recovery (CRAR). Perhaps the Government naively assumed no landlord would pursue such measures in a time of crisis. However, that is precisely what a “minority” has done and this has led to the Government introducing the following additional measures:

1. Statutory Demands issued to tenants between 1 March 2020 and 30 June 2020 are banned if they arise out of tenant’s inability to pay its bills due to Coronavirus;

2. Any winding up petition issued to tenants between 27 April 2020 and 30 June 2020 is banned if it arises out of a tenant’s inability to pay its bills due to Coronavirus albeit it must first be determined by a Court to determine its validity; and

3. The use of Commercial Rent Arrears Recovery (CRAR) will only be allowed where landlords are owed 90 days or more of rent.

It is important that both landlords and tenants realise that none of the above measures waive the tenant’s liability to pay their landlord during the “relevant period”. Therefore, if a tenant continues to be in arrears after 30 June, the landlord’s right to forfeit the lease returns. Tantamount to this, landlords and tenants should also take note that the Government have not restricted every option for landlords to enforce this liability during the “relevant period”; it is still open to landlords to issue proceedings pursuing a debt claim in the usual way, taking action against a guarantor or deducting the owed rent from the tenant’s deposit (subject to this being available to a landlord).

The latest press release by the Government makes it clear that the message they are trying to get across is that landlords and tenants need to work together to get through this crisis and therefore try to reach agreements between them in relation to rent payments which will mean the landlord-tenant relationship can continue once this lockdown is over. However, the terms of such agreements will need to be carefully negotiated.

Contact our Real Estate Dispute Resolution  team today

If you are a commercial landlord or tenant and would like to discuss any of the issues raised above please do not hesitate to contact Charles Grossman, a solicitor in IBB’s Real Estate Dispute Resolution Team.