The Coronavirus pandemic has affected all of us in some way, and property landlords are feeling the consequences of their tenants having to shut shop or offer reduced services to ensure social distancing rules are met.
In this post, I outline your legal rights and what actions you can take if your tenant is struggling to make payments.
Why is Finding a Solution So Tricky?
There are several remedies available to you as a business landlord for non-payment of rent and other sums due by the tenant under your lease. The remedies available include court proceedings to recover the debt, statutory demand and insolvency proceedings, Commercial Rent Arrears Recovery (CRAR), pursuing a guarantor and forfeiture.
The remedy which you might wish to pursue will vary depending on the particular set of circumstances, for example in pursuing a method of recovery (perhaps unsuccessfully), you might waive the right to forfeit the lease for non-payment of rent. Forfeiture alone, however, would not allow you to recover any rent due and you might be left with debt and a vacant property (potentially for some time depending on market conditions).
The introduction of recent law in response to COVID-19 has only complicated matters further. The Coronavirus Act 2020 came into force on 26th March 2020.
Prior to the COVID-19 pandemic, a landlord could forfeit the lease for non-payment of rent alone and no section 146 notice was required, unlike for other breaches of the lease. The Coronavirus Act 2020 has, however, introduced protections for business tenancies and, therefore, has restricted a landlord’s ability to recover possession of their commercial premises at this time.
The act provides that during the relevant period until 30th June 2020 (or possibly longer if extended), a right of re-entry or forfeiture for non-payment of rent cannot be enforced (The definition of ‘rent’ under the act extends to service charge and insurance rent).
In addition, the restrictions on forfeiture during this present period apply regardless of the tenant’s reasons for non-payment. However, the act does not prohibit the right to forfeit and re-enter due to breach of other covenants under the Lease.
So, What Can You Do?
At this present time, where forfeiture for non-payment of rent is therefore not an option, commercial landlords may be forced to consider other options.
Fortunately, the protections under the act do not restrict the landlord’s right to pursue claims for debt or damages, serve a statutory demand, claim against guarantors or exercise commercial rent arrears recovery (CRAR).
That having been said, as of 25th April 2020, the Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 have imposed further restrictions on enforcement action by landlords. Most importantly, the number of days that the minimum net unpaid rent must be outstanding before CRAR may take place has been increased to an amount equivalent to 90 days’ rent. CRAR can only be used to recover principal rent (not service charge or insurance rent etc.) and you also have the right to recover rent from the undertenant if better placed to pay than the head-tenant.
Although the remedies available to a business landlord have been somewhat impacted upon by recent legislation, there are still measures available which you are able to pursue. You may wish to serve statutory demand on the tenant and commence insolvency proceedings. If this remains unpaid after 21 days, then this may give grounds to present a bankruptcy or winding up petition.
Alternatively, you could issue court proceedings against the tenant to recover rent and other sums due under the lease or claim against any guarantors pursuant to a notice under Section 17 of the LTCA 1995. These options are not exhaustive and other methods of relief could also be available, for example drawing down on a rent deposit.
Are There Any Other Options?
Given the present difficulties that a landlord may face at this time, you might be best placed to come to an agreement with your tenant to suspend or reduce the rent under the lease for a fixed period.
You may wish to record a temporary waiver of the terms of the lease by way of a rent concession which will not permanently vary the lease. This could be a short-term viable option for you as business landlord in order to assist your tenant with meeting future payments.
Should you require our assistance with negotiating this with your tenant or indeed with any of the above remedies, please contact our commercial property department. A member of our experienced team will be able to talk through all of the options available to you and assist with the best method of relief for you at this present time.