Our team: Tim Foley
The Covid-19 pandemic is a period of time which it seems we are obliged to call “strange times” but for the property industry times have been even stranger. Her Majesty’s Government has now announced that the moratorium on the right to forfeit a lease for non-payment of rent laid down by the Coronavirus Act 2020 will be extended until 30 September 2020. At the same time the government also announced that it would amend the Corporate Insolvency and Governance Bill presently passing through Parliament extending the restrictions over the use of winding up petitions to the same date. Furthermore the right to Commercial Rent Arrears Recovery procedure (CRAR) is further restricted such that landlords may only use CRAR where tenants owe at least 189 days of unpaid rent. These extensions are entirely unsurprising. If it was thought that tenants were deserving of protection in March the government was never going to leave them unprotected at the end of June after a quarter of little or no trade.
The Government’s chess match with Landlords began in the third week of March. By way of reminder the Coronavirus Act 2020 prohibited forfeiture of leases either by action or peaceful re-entry if the breach of covenant complained of was non-payment of rent. “Rent” was defined extremely widely in the Act to cover not just principal rent but any liquidated sum due to be paid under the terms of the lease. The definition given to “Rent” in the Act, thus includes not only Rent but also Service Charge, and Insurance Rent. The width of the definition means that it also applies to sums payable pursuant to the lease that one might not dream as classifying as rent. Thus landlord’s costs payable following a breach of the lease is caught by the definition, as is the (admittedly small) registration fee for registering a devolution of the lease. However any other breach of the lease was fair game when it came to forfeiture. Where premises are in disrepair the lease of those premises would, subject to other statutory checks and balances, be vulnerable still to forfeiture. As such the Coronavirus Act operated to protect tenants in quite a limited way from a remedy that in practice few landlords would seek to avail themselves of.
In response to this many landlords turned to insolvency procedures. Our old friend the statutory demand became the best friend of many landlords. The tickertape parade afforded by New York City to the three man crew of Apollo 11 in August 1969 was as nothing compared to the blizzard of statutory demands in March and April. So the government made a further attempt to checkmate Landlords. Statutory demands were to be banned as the government believed they were being used unfairly by landlords against distressed tenants – legislation would be published, Grandmaster Boris was using his Queen well.
Having made this announced, nothing appeared to happen. Practitioners were tearing their hair out, the government was proposing a seismic change to insolvency laws but no draft bill was made available for, ironically, more than 21 days. When the Corporate Insolvency and Governance Bill was finally published it was a rare creature, parliamentary legislation that operates retrospectively. It is not often that parliament legislates to make a lawful act retrospectively unlawful but as we must keep saying these are strange times.
The Bill consisted of a prohibition on issuing or continuing winding up petitions where the petition is based upon an expired statutory demand that was served on or after 1 March 2020. Further winding up petitions not based on an expired statutory demand but rather other evidence of insolvency were to be restricted. The court had to be satisfied by one of two things: either that Coronavirus had not had a financial effect on the company in question (good luck finding a company that has not suffered during the Coronavirus pandemic) or that the company was still insolvent notwithstanding the effect that Coronavirus might have had on it since insolvency was not related to Coronavirus. Those petitions pending where the court could not be satisfied of those two factors were to be dismissed immediately. Those companies made the subject of a compulsory liquidation order since 27 April wouldn’t have been made had the Bill been in force at that point in time would be automatically taken out of liquidation and put back in the hands of the directors in the company’s pre-petition state. All of those pawns taken in the opening of the game could be returned to the board.
These measures were supposed to be in place until 30 June, or one month from the date that the Bill became law. Now these extraordinary measures for strange times have been extended until 30 September. That date appears to be an odd choice being one day after the September quarter day tenants that haven’t paid any rent since the March quarter day will then owe nine months’ worth of unpaid rent. A strange time to remove protection one would think so perhaps this heralds a further extension in due course.
However landlords are not yet check-mated. There are moves that can still be made. Debt proceedings are wholly unchanged so landlords can issue county court proceedings to collect the rent. Tenants that owe at least two days of rent from the December quarter and have paid no rent since March but usually pay quarterly in advance become vulnerable to CRAR on the June quarter day. At that point in time they will owe more than 189 days’ worth of rent. The game is still afoot!