COVID-19 and commercial forfeiture: A further update

In our previous blog, published on 28 March 2020 we confirmed that following the coming into force of the Coronavirus Act 2020, landlords are prevented from forfeiting a commercial lease for non-payment of rent until 30 June 2020, (subject to any extension); but that whilst protective measures have been put in place, business tenants are still under an obligation to pay rent

If a tenant is in breach of its obligation to pay rent, (which is defined under the 2020 Act as any sum a tenant is liable to pay under a relevant business tenancy), commercial landlords need to consider alternative remedies to recover their arrears of rent; however, the Government last week reduced the alternatives available to commercial landlords, as follows:

1.       The use of statutory demands are now been banned until 30 June 2020.  A statutory demand (for debts, including arears of rent greater than £750) being a precursor to the issue of a winding up petition, or liquidation of a company, which if unsettled within 21 days is pima facie evidence that a debtor, (i.e. the business tenant) cannot pay its debts; and

2.       The use of CRAC has now been restricted until there is 90 days of unpaid rent.  Under CRAR a landlord can instruct bailiffs to take control of business tenant’s goods, which they may sell if the rent remains unpaid after 7 days [CRAC is not widely used by commercial landlords, as the requirement to provide the business tenant with 7 days prior notice of a bailiff’s attendance has resulted in business tenants removing their goods from the premises.  Coronavirus has seen a rise in commercial landlords use of CRAC, with business tenants not being in occupation, working remotely from home; hence, the above-stated restriction] What’s left for commercial landlords?

(a)    To drawdown any rent deposit;

(b)    To pursue a guarantor, or former tenant; or

(c)     Give business tenants time to pay but subject to the parties entering into a payment agreement, which does not vary the lease terms and preserves the commercial landlord’s right post-Coronavirus, (if a commercial landlord is considering entering into a payment agreement, then we recommend that legal advice is taken beforehand).

If you have any queries, please contact Anthony Best, Head of Dispute Resolution