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Further laws introduced by the Government to assist commercial tenants

30-04-2020


As a result of the significant financial pressures faced by many individuals and businesses during the current crisis, the Government introduced the Coronavirus Act 2020 (the Act) on 25 March 2020, which amongst other things, afforded protection to commercial tenants from forfeiture for non-payment of rent up to 30 June 2020.

This clearly provides some welcome respite for many tenants, enhanced by the Court’s imposing a mandatory 90-day stay (i.e pause) on claims brought by landlords for possession[1], even including forfeiture claims which do not relate to non-payment of rent, and may have no connection to the current pandemic, such as disrepair.

The Act does not absolve the tenant of its liability to meet its obligations, and we have experienced many landlords (with their own liabilities to meet) who have been put in the difficult position of not receiving rent from their tenant subsequent to the Act being introduced.

Many parties have been able to communicate constructively and arrange alternative payment structures to reflect the commercial realities in the current circumstances. However, there has also been a shift towards landlords serving statutory demands on tenants, which broadly speaking allows the tenant 21 days from the date it receives the demand to make payment before the landlord is entitled to present a winding-up petition to the Court.

It is not the case that all landlords wish to wind-up their tenants. Serving a statutory demand can be an effective tool to bottom out the tenant’s position, facilitate dialogue, and sufficiently incentivise the tenant (if they are able) to pay their rent, perhaps before other creditors form a queue.

Corporate Insolvency and Governance Bill

The Government is however concerned that landlords are adopting sharp practices, commenting on 23 April 2020 that “the majority of landlords and tenants are working well together to reach agreements on debt obligations, but some landlords have been putting tenants under undue pressure by using aggressive debt recovery tactics”.

As a result, the Government is introducing leglisation to temporarily ban the use of statutory demands (made between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to 30 June, where a company cannot pay its debts due to coronavirus[2].

This is designed to reinforce the spirit of the Act, protecting tenants and ensuring there is no work-around for landlords. The threat of insolvency is more perilous to a business than the threat of losing its premises, although in most cases these come hand-in-hand.

The big question that remains is how long these measures will endure, if at all, beyond 30 June 2020 and the effect that this rent-break will have on a tenant’s ability to meet subsequent liabilities under the lease, particularly those required to pay for the third-quarter falling due on 24 June 2020. I suspect the Government will need to either extend, or introduce fresh measures because of the knock-on effect that the current circumstances are likely to cause.

[1] Subject to exceptions, such as trespasser proceedings

[2] Landlords will also be prevented from sending in bailiffs under the Commercial Rent Arrears Recovery scheme (CRAR) to seize assets unless 90 days or more of rent is unpaid.


Sam Pinder

Associate
Commercial Disputes
Property Disputes

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