Coronavirus and business tenancies - landlords' rent collection options restricted further
"High street shops and other companies under strain will be protected from aggressive rent collection and asked to pay what they can during the coronavirus pandemic"
announced the Business Secretary on 23 April 2020.
The draft legislation to implement this protection is not available at the time of writing, but it is clear that the intention is to restrict the use of rent collection procedures that were not affected by the Coronavirus Act 2020, which became law last month. Those include the use of:
- Commercial Rent Arrears Recovery (CRAR) – the seizure of tenants' goods.
- Statutory Demands under the Insolvency Act 1986.
- Winding-up and Bankruptcy Petitions.
We previously highlighted the mythology which has sprung up in the business tenancy sector. See Coronavirus – effects on business landlords and tenants – 'fake news' … and what to do when the crisis is over. Many tenants interpreted the moratorium on forfeiture as meaning that they did not have to pay their rent at all. A number, including some big high street names, have taken this to a further level and have refused even to communicate with their landlords.
The Government is rightly sympathetic to struggling businesses, but its urging of business landlords and tenants to "work collaboratively" has not completely got through to some. Whilst the latest Government announcement is plain that much of a landlord's weaponry will be disabled, it also mentions the requirement for tenants "to pay what they can".
What are business landlords to do? Tenants who have refused to discuss how their rent will eventually be paid could have been encouraged to do so by the threat of action other than forfeiture. If those procedures are not going to be available, will the myth of a rent-free holiday come closer to a reality? Many business tenants are likely to suggest that.
It is possible to discern from the Government announcement that the picture for landlords may not be as stark as it might appear.
It is said that
"The temporary emergency measures are designed to acknowledge the pressures landlords are facing while encouraging cooperation in the spirit of fair commercial practice."
Possible "COVID-linked inability to pay" test
At the end of the political rhetoric in the announcement, the 'notes to editors' section is perhaps the most enlightening. It suggests that there is to be a test for whether insolvency procedures can be used. It is said that if rent cannot be paid the Court will determine whether that "inability to pay is the result of COVID-19".
We await to see what that test will involve, but none of this should prevent landlords from using legitimate means to encourage dialogue, or tenants addressing rent liabilities which have not disappeared.
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.