Coronavirus and Rent – a further update
29th September 2020
The government has taken action to extend once again some of the protections given to commercial tenants under the Coronavirus Act 2020 that were due to come to an end on 30 September 2020.
The moratorium on the landlord’s right to forfeit commercial tenancies for non-payment of rent has been extended to 31 December 2020. The restrictions on Commercial Rent Arrears Recovery (or CRAR) have also been extended, meaning that if a landlord wishes to use CRAR between 29 September and 24 December 2020 there will need to be 276 days’ rent owing and from 25 December until 31 December 2020 the requirement increases to 366 days’ rent owing.
The COVID- specific restrictions on statutory demands and winding up petitions contained in the Corporate Governance and Insolvency Act 2020 are also extended until 31 December 2020. This means that a creditor still cannot rely on non -payment of a statutory demand served after 1 March 2020 as the basis of a winding up petition. Similarly, a creditor presenting a winding-up petition after 27 April 2020 has to show that it has “reasonable grounds” for believing that COVID has either had (i) no financial effect on the debtor company or (ii) that the company would not have been able to pay its debts regardless.
It is worth noting that one protection that has not been extended is the stay on court possession proceedings. Forfeiture for breaches of covenant by a tenant – other than non-payment of rent – have remained unaffected, however they could not be enforced through the courts due to a general stay on possession proceedings. On 21 September 2020, the stay on possession proceedings was lifted, so landlords are once again able to seek possession for breaches other than non- payment of rent. This will not be a quick solution, however, as there will be a significant backlog of cases.
Alternative rent recovery measures available to landlords have remained unaffected. They include the ability to draw down on rent deposits and seek top-ups, to seek payment from current guarantors and/or former tenants and guarantors and to pursue debt proceedings against the tenant.
The Government continues to encourage landlords and tenants to act in good faith, and, where possible, comply with the voluntary (and temporary) landlord and tenant Code of Practice that remains in force until June 2021. The Code seeks to provide a framework within which landlords and tenants can reach compromise arrangements on the level and frequency of payment of rent, service charge and insurance contributions, and sets out some principles to govern the parties’ discussions.
Although the extension of these various COVID protections has been welcomed to protect truly vulnerable tenants, it still appears – in spite of the Code – that well-capitalised tenants continue to take advantage of them in order to preserve and, in many cases, improve their own cash flow at the expense of landlords who remain without any government assistance.
More significantly, the further extensions do nothing to actually resolve the issue of rent arrears. They simply push the problem further down the road.
If you need advice on the impact of COVID-19 on the payment of rent or on any other aspect of the landlord and tenant relationship, please contact:
Caroline DeLaney, Head of Real Estate Disputes
Phone: +44 (0) 20 7955 1423