Commercial rent arrears options post-Covid

Whilst we are reminded every day that Covid is very much still with us and that the public should still take precautions, life is returning to some version of normality in the country! So can the same be said for the provisions brought in by the Coronavirus Act 2020 (“the Act”) in relation to commercial properties and rent arrears?

I discuss the options available to commercial landlords who are faced with tenants who are not paying their rent.

Forfeiture

Currently, if your tenant is in rent arrears, a landlord cannot enforce a right of forfeiture for non-payment of rent in relation to a business tenancy between 26^th March 2020 and 25^th March 2022. Rent includes any sum a tenant is liable to pay under the relevant lease and therefore almost certainly includes insurance rent and service charges.

Forfeiture is however not prohibited for other breaches of the terms of the lease but if court proceedings are issued landlords should be aware that courts are facing significant backlogs.

Statutory Demand

A statutory demand is a written demand for the payment of a debt on an individual or company. A debtor who for three weeks, fails to comply with a statutory demand for a debt more than £750 (for companies) or a debt of £5000 or more (for individuals) is at risk of having bankruptcy or winding up proceedings issued against it. The service of the demand is usually the first steps taken by a creditor who proposes to issue winding up and bankruptcy proceedings.

The Act prevented the presentation of winding up petitions after 27^th April 2020 in respect of any statutory demand served between 1^st March 2020 and 30^th June 2021. Further, regardless of when the statutory demand was served, no winding up petition could be presented until after 30^th September 2021 and after this date only in limited circumstances.

New regulations lifts the blanket ban on the presentation of petitions based on statutory demands but imposes new conditions for winding up petitions. ‘One of the conditions is that the debt must not be an excluded debt. One of the excluded debts is rent or any other sum payable under a business tenancy which remain unpaid by reason of a financial effect of coronavirus. This means that between 1^st October 2021 until 31^st March 2022 landlords will not be able to present winding up petition against companies in respect of arrears of rent and other sums payable under a business tenancy unless it can be shown that the arrears had not accrued because of the effects of the coronavirus. This may well be difficult.

As for individual bankruptcy there is no restriction on issuing such petitions and ultimately it may allow you to forfeit the lease although care needs to be taken not to waive any right to forfeiture.

Commercial Rent Arrears Recovery

The CRAR procedure allows landlords to appoint registered agents to attend the tenant’s premises and take control of goods and sell them if those goods meet arrears. However the Act brought into effect restrictions on the use of such enforcement action. This includes an increase in the minimum net unpaid rent that must be outstanding before CRAR can take place. Currently the minimum unpaid rent has to be 554 days before CRAR can be used.

Debt Proceedings

There are currently no restrictions on landlords issuing proceedings to recover rent arrears although if the tenant has no assets then the landlord may be throwing good money after bad just to get a judgment from the court with no means of actually recovering the monies.

These restrictions certainly appear to suggest for landlords who have tenants with rent arrears things are certainly not returning to any kind of normality and certainly many landlords may find themselves stuck with tenants who are simply not paying their rents although they are back trading. With the furlough scheme ending things may well get worse.  There is also the added risk that the government may change any of the dates when these restrictions are to end, extending them further.