The Coronarvirus Act 2020 was passed on 25 March 2020. The Act provided an immediate moratorium on landlords looking to take steps for forfeiture/re-entry for non-payment of rent. The protection is due to end on 30 June 2020 unless extended by the Government.
The Act was passed to protect the tenants genuinely struggling to pay rent and keep its business going due to the overnight impact COVID-19 had. It was noted when the Act was passed that there remained significant other enforcement options remained for landlords; important where tenants are able to pay but are simply seeking to take advantage of the moratorium designed to protect those who can’t.
Late yesterday the Government announced further temporary measures to safeguard the ‘UK high street’ against aggressive debt recovery actions by landlords during the COVID-19 pandemic.
The headlines of the latest announcement are as follows:
- Statutory demands and winding up petitions issued to commercial tenants are to be temporarily voided; and
- Changes are to be made to the use of Commercial Rent Arrears Recovery prohibiting it unless at least 90 days of rent are unpaid by a tenant. (Usually CRAR can be implemented on any amount of unpaid rent). Given that many tenant’s missed the March quarter date and the June quarter date is looming, the 90 days of rent unpaid limit on CRAR does not, on the face it of it, buy a tenant significant time.
The announcement specifically referenced the high street, but the existing Coronavirus Act 2020 draws no distinction between commercial tenant types, applying a blanket moratorium on landlords operating in all sectors, so we anticipate the new measures may extend to all commercial tenants.
The detail available so far suggests that Court initiated winding-up on the grounds of unpaid rent arrears, may not be completely “voided” but rather the Court has to assess each case and if the reason for the default is expressly COVID-19 related then action cannot proceed. This will likely mean in practice that landlords are advised not to incur the costs of this approach. The specific wording of the legislation will be important to assessing the actual impact of this proposal.
Nothing has been mentioned in this initial announcement with regard to a landlord being prevented in bring traditional court proceedings for rent arrears. This may be because the hearing dates listed by the courts are being diarised for well after the 30 June (end of initial period to which Act applies). For now, pending the finer detail, it seems that the landlord can start the wheels in motion and bring a claim, getting ahead of the queue that will inevitably appear when measures are lifted or obtain a default Judgment if the tenant has no legal grounds for opposing payment. Furthermore, it would currently seem that there is no block on the landlord then taking steps to enforce any judgment for unpaid rent and costs (as an undisputed debt) using the winding-up route later on.
Interestingly, the proposed new changes makes no reference to individual or unincorporated partnership tenants, who could have a statutory demand issued against them and bankruptcy pursued. One would expect the business secretary to consider all businesses as it attempts to put in further measures and this may follow. For now, it remains an option subject to practical issues in insolvency proceedings against individuals requiring personal service, which is of course restricted by the lockdown. However, the Court, alive to current policy, is likely to think carefully before ordering a tenant’s personal bankruptcy if the non-payment relates to COVID-19 reasons.
The Government is trying to encourage collaboration between landlords and tenants, but that will become more and more difficult when measures are getting increasingly tenant friendly, arguably forgetting the landlords businesses also trying to survive this difficult period. It is no easy task finding a “fair” balance. A one-size fits all approach does not work to cover what is in reality a significant variety of bargaining positions, varying between each landlord and tenant relationship. It is not all large institutions with an ability to weather the storm letting to small business, it may just as easily be a private land owner letting to a large company with the rent providing the landlord’s sole income. Further, no distinction is made between different sized commercial tenants. Larger, traditional “blue chip” tenants (traditionally regarded a better covenant and not required to give guarantees) may feel more protected compared with smaller commercial tenants who are more willing to enter into payment proposals because they are concerned about their personal guarantee exposure.
The Act gave an ability to extend the existing measures (and we anticipate it will do the same with these new measures following this latest announcement) beyond the end of June. Whenever these measures are lifted, landlords and tenants alike, who have not been able to “collaborate” as the Government hopes, will find themselves in a position where the gloves are off.
Further details have not, at the time of writing, been published or introduced into the legislation and we are following developments closely.