Coronavirus – effects on business landlords and tenants – 'fake news' … and what to do when the crisis is over
The week of the March quarter day was one of the most tumultuous in the business tenancy world. It is perhaps hardly surprising that 'fake news' has emerged as a consequence. Moreover, it appears that the potential effects of the emergency legislation were (perhaps understandably) not completely thought through.
Do tenants have to pay rent this quarter, or not?
Barely any retail tenants paid any rent on 25 March, anecdotal evidence suggests. Many other business tenants paid only one month's worth of rent on the quarter day. Many did not tell their landlords what they intended to do. Many have referred to the Government's announcement on 23 March as permitting a 'rent holiday'. Others have gone further and referred to a 'rent free holiday', and still others that it amounts to a complete waiver of the obligation to pay rent for three months.
This perception has been fuelled by a number media statements by high profile retailers suggesting that there is no question of paying rent at present, or that the non-payment of rent is 'a given'.
Granted, many retail tenants are struggling at present, but it was even reported that a supermarket (whom one would think would have no income problems at present) also declined to pay rent, and rebutted attempts by its landlord to obtain payment with a bare assertion that the emergency legislation excuses it from paying.
What does the emergency legislation actually say?
- Section 82 of the Coronavirus Act 2020 simply prohibits the Court from making an order for possession, on the basis of forfeiture, for non-payment of rent, until 30 June 2020.
- Nothing in the Act relieves any business tenant of the obligation to pay rent over the next three months, or beyond that if, as many expect, the emergency measures are extended beyond June.
- Nothing in the Act prevents a business landlord from instigating payment-enforcement methods, other than forfeiture [see Coronavirus and rent – tips for business landlords], although it is said that most landlords are sympathetic to tenants.
From a landlord's perspective there are two important points to consider -
- Agree any concessions in writing
Landlords should make sure that tenants are absolutely clear on the terms of any concession. Put it in writing (we can help with that). As a minimum, make sure the following are mentioned:
- That any outstanding rent has not been waived.
- The period of the concession (e.g. until 24 June 2020).
- Either how and when deferred rent is to be paid, or that proposals for payment will be expected.
- There will be a scramble of creditors when all of this is over
When the emergency measures come to an end, there will be many creditors trying to obtain payment from tenants, and landlords will want to get themselves to the front of the payment queue, if at all possible. It must not be forgotten that the other common methods of enforcement are still available to landlords, despite the forfeiture moratorium: CRAR, debt action, or threat of insolvency [see Coronavirus and rent – tips for business landlords]. Often, the creditor who shouts loudest gets paid first.
That said, the Courts & Tribunal Service is finding it just as difficult as everyone else to conduct business at the moment, and it has so restricted its services as to make most court action as good as impossible for the time being. Some enforcement procedures have been suspended. No doubt there will be a backlog when we emerge from the crisis.
Also, the Ministry for Communities & Local Government has said that it will monitor the use of enforcement procedures. The implication must be that if things get out of hand, there will be legislation, and perhaps other moratoriums on the use of certain procedures.
For tenants, perhaps the only alternative may be to make use of one of the restructuring or insolvency procedures to try and rescue their businesses. If that is a possibility, the sooner one takes advice from our restructuring specialists, the greater the options are likely to be. Please see our article: Trading through the Coronavirus – issues for directors.
Expiry of leases
A particular problem will be posed for landlords where leases expire during a period of rent concession or whilst the emergency measures are in place. That will make the most effective methods of enforcement (forfeiture and CRAR) impossible, leaving debt actions and insolvency procedures as the only likely alternatives.
In these circumstances, landlords might consider seeking guarantors as a condition for any concessions.
Further guidance for business landlords can be found in our article about lease management for business landlords.
Further guidance for business tenants can be found in our article about lease management for business tenants.
If in doubt about anything, take advice.
If you would like to discuss any of the issues raised in this article, or have other concerns about the impact of Coronavirus, please contact Andrew Baines, Partner and Head of Michelmores' Property Litigation team.
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This article is for information purposes only and is not a substitute for legal advice and should not be relied upon as such. Please contact our specialist lawyers to discuss any issues you are facing.