Covid-19 : Commercial Landlord and Tenant

Woodfines Solicitors

26th March 2020

During these unprecedented times, we wanted to provide you with up-to-date information regarding landlords and tenants and their rights during covid-19.

The Government’s decision to impose a lockdown will mean that many tenants occupying commercial premises have had to close the doors to their businesses. As a result, many are asking themselves what this means for their lease. Can they refuse to pay their rent in order to maintain cashflow? What if tenants simply do not have the funds to pay? Likewise, commercial landlords may heavily rely on such rental income and will want to ensure its continuance.

It is unlikely that COVID-19 will release either party entirely from their obligations under the lease. This means that tenants will be obliged to pay their rent and that landlords will be entitled to pursue all the usual remedies if they don’t. These include:

  • Court proceedings
  • Commercial Rent Arrears Recovery (CRAR)
  • Insolvency proceedings
  • Forfeiture
  • Claims against guarantors (if applicable)
  • Calling on rent deposits (if applicable)

These standard options however, are likely to be limited further to emergency provisions contained in the Coronavirus Bill, laid before Parliament.

The emergency provisions contained in the Coronavirus Bill are likely to prevent a landlord forfeiting a lease for non-payment of rent until 30 June 2020 where their tenancy falls within Part 2 of the Landlord and Tenant Act 1954. If the Bill is passed, as drafted, this would apply to any proceedings in the High Court and County Courtincluding those proceedings commenced before the Relevant Period.The Relevant Period begins the day after the day the Act is passed and ends on 30 June 2020. Any Order made during the Relevant Period must ensure that the landlord cannot take possession before 30 June 2020. Any Order already made will be extended until after 30 June 2020.

Landlords will be unable to enforce a right of re-entry or forfeiture for non payment of rent during this time. Practically, social distancing and “lock down” does of course restrict the use of peaceable re-entry and forfeiture in any event.

Landlords will be able to pursue debt recovery measures against Tenants during this period and also, where rent is defined in the lease as a liquidated sum, you may be able to issue a statutory demand, winding up or bankruptcy petition against your tenant. Ultimately, as a Landlord, you will need to assess whether it is better to have a tenant in situ paying for example, a reduced rate, rather than seek to pursue debt recovery or insolvency proceedings. You will also need to assess whether pursuing debt recovery or insolvency proceedings is likely to result in a payment to you for the tenants arrears.

During covid-19, you may be able to rely on Commercial Rent Arrears Recovery (CRAR). This is usually a powerful tool for recovery of rent however, given rules on social distancing, enforcement officers are exercising CRAR via letter, email and telephone call rather than by visits to premises. This is likely to impact the success of this process. That said, when rules on social distancing are relaxed, an agent will be able to attend the tenants premises with a view to collecting rent or seizing the tenants assets.

Landlords may be able to take advantage of a 3 month mortgage payment holiday where their tenant’s are experiencing difficulties paying rent due to Coronavirus. Likewise, Landlords should be aware that tenants may be taking advantage of the government’s financial measures for businesses and consider whether the tenants use of these initiatives, impacts the steps to be taken by the Landlord.
Both parties should review their insurance policies to see whether there is cover for business interruption or loss of rent.

The above options should be considered carefully and expert advice sought.

What can you do?
Communicate. It is vital that there is open communication between landlords and tenants to discuss the payment of rent. Can you negotiate a payment arrangement that suits both parties for the time being? If you can, ensure you have this agreement in writing and that any agreement is flexible and can change according to the fluid situation and further Government guidance.

Woodfines will be keeping a close watch on the latest information released in respect of the impact of Coronavirus on landlords and tenants and we will provide up-to-date information as soon as it becomes available.

This is a brief summary and where you have any questions relating to your property, or require landlord and tenant advice, please contact litigation@woodfines.co.uk

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