Our team: Rachael Studman
Seven months into the Coronavirus pandemic, it is almost certainly safe to say that both landlords and tenants have become well acquainted with the restrictions aimed at protecting tenants struggling to pay their rent. The legislation which was hurriedly introduced following lockdown has left landlords with their hands metaphorically tied, taking away the array of remedies usually available to them. Although the Government encouraged landlords and tenants to cooperate and find mutual solutions, this has not always been possible. Now that the sunset clause for many of these temporary restrictions is on the horizon, what does it mean for landlords and tenants?
Sections 82 and 83 of the Coronavirus Act 2020 imposed a ban on the use of forfeiture for non-payment of rent. These provisions were due to expire on 30 September 2020, but have been extended for a further three months, until 31 December 2020. Despite these provisions, forfeiture by peaceful re-entry remains available where the tenant has committed breaches unrelated to the non-payment of rent or other sums due.
The difference in the position between commercial and residential tenants in this regard is stark. Although the notice periods for evictions have generally been lengthened, the stay on possession proceedings has not been extended and expired on 20 September. This decision is particularly surprising as it means it is likely that a wave of possession orders will be made in the midst of the second Coronavirus wave this winter.
Commercial Rent Arrears Recovery (“CRAR”)
While legislation has not banned the use of CRAR (which enables a landlord to instruct an enforcement agent to recover the arrears by seizing the tenant’s goods and selling them at auction, if rent remains unpaid after service of a notice), it has introduced some considerable restrictions.
The latest restriction will come into force on 29 September 2020 under the Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020. These provisions increase the amount of rent arrears required before a landlord can exercise CRAR.
A landlord will now only be able to use CRAR to recover rent arrears where there is a minimum of 276 days’ rent outstanding. This is to increase further to a minimum of 366 days’ worth of arrears where the taking control of goods takes place on or after 25 December 2020.
Tenants may exploit this change by making a minor payment to bring their rent arrears down to less than the equivalent of 276 days, or 366 days after Christmas, which would scupper landlords’ ability to use CRAR for a considerable length of time.
Statutory demands and winding up petitions
The retrospective restrictions on the use of winding up petitions were a particularly stifling development. Under the Corporate Insolvency and Governance Act 2020 (“CIGA”), landlords were left unable to present a winding-up petition on the grounds of an unsatisfied statutory demand or judgment. The only remaining ground under which a winding up petition can be granted is if the landlord successfully proves to the court that the tenant was unable to pay its debts as they fell due and that Coronavirus had not had a financial effect on the company. In the current climate, this is clearly a very difficult point to prove, although some cases have shown that it is not impossible.
These restrictions which were due to expire on 30 September 2020 have now been extended until 31 December 2020, while other measures introduced by the CIGA such as the rules on the new moratorium regime have been extended for a further 6 months.
County Court Judgments
The use of CCJs against tenants for rent arrears has remained unrestricted throughout the Coronavirus crisis. Traditionally it has not been the most popular option for landlords. It is a time-consuming and expensive process, particularly when compared to other options such as statutory demands.
While landlords remedies have been restricted, these have not expunged arrears or rent liabilities and, in the absence of more attractive alternatives, CCJs are one way for landlords to force their tenants to pay what remains lawfully owed.
Even as the deadlines on various restrictions imposed during the early stages of the Coronavirus loom, landlords should not yet breathe a sigh of relief. Some of the restrictions have already been extended and non-paying commercial tenants will continue to enjoy considerable protection for the foreseeable future.
In this context keeping the lines of communication between landlords and tenants open and trying to reach a compromise to navigate the current crisis should still be on the cards.
If that fails, speak to a member of the Property Litigation team for advice about your options.