Landlords are currently unable to forfeit commercial leases as a result of non-payment of rent. This is a temporary ban which has been implemented as a result of the Covid-19 pandemic. It is due to be lifted at the end of June 2021.

There are also restrictions on a commercial landlord’s right to the recovery of rent via the Commercial Rent Arrears Recovery (CRAR). For any action brought by a landlord using CRAR between the 25 March 2021 and 23 June 2021, there must be a minimum of 457 days’ of rent outstanding. If the action is brought between 24 June 2021 and 30 June 2021, there must be no less than 554 days’ of rent outstanding.

The temporary protections will no doubt have been welcomed by tenants but the flip side is that when these restrictions come to an end, there may be a rush on landlords commencing CRAR actions and/or seeking to forfeit leases for non-payment of rent.

Furthermore, while the restrictions do provide greater leniency for commercial tenancies, they do not prevent enforcement action altogether and do not discharge a tenant’s obligation to pay rent. Interest on any outstanding rent will continue to accrue and landlords can bring civil court claims to recover outstanding rent arrears. The case of  Commerz Real Investmentgesellschaft MBH v TFS Stores Ltd has recently upheld a landlord’s right to bring such a claim and confirmed that it is the tenant’s responsibility to obtain business interruption insurance.

Tenants should therefore pay their rent where possible, and failing that, should attempt to agree a reasonable repayment plan with their landlords so as to avoid incurring the costs of civil action.

A tenant should also consider whether to seek its landlord’s agreement in any lease negotiations for the inclusion of a pandemic rent suspension clause. In the recent case of  WH Smith Retail Holdings Limited v Commerz Real Investmentgesellshaft MBH  the landlord and tenant had agreed to such a clause being included in the new lease but could not agree what event should trigger the clause. The matter was therefore brought before the court for determination. The court held that the correct trigger event should be when government restrictions forced all non-essential retail to close. Where such a clause is in place, this would have the effect of granting rent suspension to even essential retailers on the assumption that their trading is likely to be depressed due to a significant decrease in non-essential footfall, even though they may not be closed.

Whilst this case has no binding effect on any future cases, it does show that pandemic rent suspension clauses may now become the norm whilst negotiating lease terms so that tenants will have some form of relief if we ever find ourselves in this position again.

If you would like to discuss this article or would like any further information, please contact Danielle Cook on 0113 280 2029 or danielle.cook@luptonfawcett.law.

 

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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