The announcement on 4 January 2021 of the new lockdown in England was a further blow to business. With many tenants already struggling to pay the rent, here is a useful reminder for landlords of the current legislation.

On 9 December 2020, the Communities Secretary, Rt Hon Robert Jenrick MP, announced that the temporary ban on the use of forfeiture for non-payment of rent, the use of Commercial Rent Arrears Recovery (CRAR) and the issue of statutory demands and winding up petitions where a company’s inability to pay its bills is due to COVID-19, will be extended until the end of March 2021.

It therefore remains the position that any winding up petition which claims that a tenant is unable to pay its debts must first be reviewed by the court to determine why the tenant cannot pay.  The court will refuse to consider such a petition further where a tenant is unable to pay as a result of COVID-19.  From 25 December 2020 landlords will also only be able to exercise CRAR where there are arrears equivalent to a minimum of 366 days’ net rent.

The message from the Government nevertheless continues to be that a tenant should pay its rent if it can do so. These measures are intended only to protect and support the worst affected businesses. Other remedies remain available to a landlord if a tenant is in breach of other obligations in its lease.

Landlord remedies which can currently be used, but which may not be available in all instances, include:

  1. Forfeiture for breaches of covenant other than non-payment of rent;
  2. Drawing funds out of any rent deposit that may exist;
  3. Pursuing any guarantor or former tenant who is liable under the terms of the lease;
  4. Requiring any other unlawful occupier to vacate or regularise their occupation and meet the rental liabilities;
  5. Calling on a lawful occupier to pay their rent direct to the landlord (instead of the tenant); and
  6. Pursuing debt recovery proceedings against the tenant.

Which option is most suitable will depend on the particular circumstances. However, it would be prudent for a landlord to try and engage with its tenant to obtain clarification of the tenant’s circumstances before resorting to any of these options and, in particular, option 1) which may result in the termination of the lease, and option 6) which could result in the insolvency of the tenant and therefore ultimately forfeiture and termination of the lease. Most leases are long-term relationships and, whilst a tenant may not be able to pay the whole or part of its liabilities in the short-term, it may be in a position to make proposals as to how it will meet these liabilities in the long-term. This could be by way of a deferral of whole or part of its liabilities for a specified period. Any agreement should be formally documented to ensure it is enforceable between the parties.

Where an agreement can be reached, this will provide an element of certainty as to when the tenant will be in a position to pay and will prevent any potential accidental waiver by the landlord of unpaid sums in the meantime. Further, a landlord should consider whether termination of  a lease would leave it in a more onerous position. A landlord will become responsible for business rates and all other utilities, charges and outgoings in respect of a property if it cannot be leased to a new tenant. These are usually the tenant’s responsibility when a property is occupied.

If no agreement can be reached, it may be worth holding out until the current protections for tenants finally lapse. The Government’s current position is that the protections will lapse at the end of March 2021 and no further extensions will be granted. However given the new lockdown that has been imposed it would not be surprising if the protection for business tenants is further extended beyond 31 March 2021.

In June 2020, the Government produced a voluntary Code of Practice with suggestions as to how to approach the current situation. The Code can be found here:

https://www.gov.uk/government/publications/code-of-practice-for-the-commercial-property-sector/code-of-practice-for-commercial-property-relationships-during-the-covid-19-pandemic

Further guidance to try and assist negotiations between landlords and tenants will be published early this year. Mr Jenrick has also announced that there will be a review of commercial landlord and tenant legislation because it is viewed as being outdated, particularly in the current climate.

For more information and guidance on your rights as a commercial landlord during these difficult times, please contact David Whitaker on 0113 280 2118 or Julian Rowden on 0114 228 3280 to find out how they can assist you with this.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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