With no immediate end in sight to the problems caused by the pandemic, many business landlords are reconsidering their tenants’ positions. Anecdotal evidence suggests that many business tenants who can pay rent have either done so, or are sticking to a concessionary arrangement. But there are still those who could pay but have chosen to take advantage of the restrictions on landlords, or who haven’t reached an alternative agreement with their landlord, or who haven’t stuck to previously agreed concessions. What can landlords do?
Prohibitions on the usual self-help remedies such as forfeiture remain in place until at least the end of this year, but landlords can still sue for rent in the County Court. That has never been prohibited; it’s merely the ability to enforce a judgment that was restricted. The brakes on enforcement were released on 24 August 2020.
The question for a landlord to ask, however, is where will a County Court judgment lead?
Where there is valuable stock or equipment on the premises, then instructing the County Court Bailiff or (usually better) transferring enforcement to a sheriff, may effectively and legitimately circumvent the limitations on the Commercial Rent Arrears Recovery process (CRAR). Often the mere threat of a bailiff or sheriff is enough to encourage cooperation by a tenant.
Other methods of judgment enforcement against a corporate tenant are problematic. The effect of a statutory demand or a winding-up petition is limited under the recently enacted Corporate Insolvency & Governance Act 2020. A judgement creditor now has to prove that the tenant’s failure to pay is not due to the effect of COVID-19 on the tenant’s business. The same limitations do not apply to bankruptcy petitions, so the threat of personal insolvency may be a useful tool in the case of individual tenants or guarantors.
Where a landlord is frustrated by a tenant’s refusal to make acceptable proposals, the pursuit of court action may nevertheless be the catalyst for a tenant to face up to the issues, and make a proposal, even if that is to enter a process such as administration, a company voluntary arrangement (CVA), or the new monitored arrangement instituted by the Corporate Insolvency & Governance Act. Where there is no hope of payment, in full or otherwise, there may be no better alternative.
Landlords are not completely paralysed, but it is important to consider where the possibilities might lead, and the taking of specialist advice is recommended.