COVID-19 and the recovery of commercial rent arrears

 

Commercial landlords have been significantly impacted during COVID-19 due to various legislative changes preventing any meaningful enforcement of commercial rent arrears. As lockdown restrictions ease, and businesses return to normality, many landlords are exploring their options to enforce accrued rent debt. This note considers the current restrictions in place and the implications of the proposed enactment of The Commercial Rent (Coronavirus) Bill. If enacted, the legislation will “ringfence” Covid related rent arrears and establish a binding arbitration system for any rent arrears that have not been mutually resolved between a landlord and tenant in accordance with a new Code of Practice. 

 

Commercial landlords will no doubt be familiar with the existing restrictions placed on the enforcement of rent arrears since the start of the pandemic in March 2020. Whilst the current restrictions are due to be lifted in March 2022, the Commercial Rent (Coronavirus) Bill will, if enacted, continue to restrict enforcement of “ring-fenced” arrears. For more information see the other blog here.

 

 

 Forfeiture of a commercial lease for non-payment of rent or other sums due under a lease. 

 

Section 82 of the Coronavirus Act 2020 prevents landlords of most commercial properties from being able to evict tenants for non-payment of rent and other sums due under a lease, whether by peaceable re-entry or court proceedings. This measure remains in place until 25 March 2022.

 

 A restriction on the use of Commercial Rent Arrears Recovery (CRAR) under  The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020. This restricts the ability of landlords to seize goods owned by a tenant where rent arrears remain unpaid. Landlords are, however, able to utilise CRAR if there are over 554 days’ worth of rent outstanding. Again, this measure remains in place until 25 March 2022.

 

 Under the Corporate Insolvency and Governance Act 2020, commercial landlords have been prevented from being able to serve a winding up petition based on an unsatisfied statutory demand served between 1 March 2020 and 30 September 2021.

 

On 1 October 2021, various amendments to the legislation came into effect. These changes prevent landlords from presenting a winding up petition to recover rent and other sums due under a lease where sums unpaid are linked to the financial effect of the pandemic. These new restrictions will apply until 31 March 2022.

 

 

Whilst the above restrictions continue to provide a lifeline for many commercial tenants, it continues to burden landlords whose rights to enforce rent arrears have been severely curtailed since March 2020. Depending on the specific circumstances of each case, limited options may be available. It may be possible for commercial landlords to recover sums due from former tenants, guarantors, or sub-tenants. It may also be possible for a landlord to draw down on any rent deposit, although this will be subject to the contractual terms of the rent deposit deed and how the deposit is held by the landlord. In addition, if the bill is enacted, landlords will be unable to draw down on the rent deposit to cover any liability for “ring-fenced” arrears.

 

 Debt recovery proceedings

 

There are currently no restrictions in place preventing the ability for landlords to enforce the tenant’s liability under a lease, by means of contractual enforcement or debt recovery proceedings. Landlords are free to issue claims in both the County Court and High Court and can do so using either Part 7 or Part 8 of the Civil Procedure Rules. 

 

However, The Commercial Rent (Coronavirus) Bill seeks to restrict a landlord's ability to commence court proceedings for “ring-fenced” arrears. If enacted, landlords will be prevented from issuing a claim for ring-fenced arrears from the date of enactment until the last date on which a claim could have been referred to arbitration or the date on which arbitration was concluded. If a landlord proceeds with an application to court, then the court can stay any claims issued between 10 November 2021 and the date the legislation is passed. In staying the proceedings, it enables the issue to be resolved by other means, such as binding arbitration or otherwise. 

 

Any judgment in current proceedings entered on or after 10 November 2021 can also be referred to arbitration for relief. 

 

The new measures will come as a frustrating blow to many landlords as it takes away their last remaining enforcement option. However, “non-ring-fenced” arrears will be subject to the ordinary enforcement measures post March 2022 and Court proceedings will remain a viable option for rent arrears not likely to be ring-fenced (i.e. where a tenant continued to trade during the pandemic and faced minimal impact due to COVID-19). 

The Commercial Rent (Coronavirus) Bill is expected to be passed into law by 25 March 2022. Further details on the Government’s proposed scheme and its potential impact on rent arrears recovery can be found here.