Business Tenancies – What landlords and tenants need to know about the latest Coronavirus measures
The current pandemic, and the restrictions the Government has introduced to limit the spread of the disease within the UK, have created an unprecedented challenge for both tenants and landlords. While some of these restrictions are now being lifted, what is without doubt is that the economic disruption of Coronavirus will continue to be felt for some time.
In the light of this, on 19 June 2020, the UK Government confirmed the following changes to the existing package of measures to provide a further halt to business evictions and more support for business tenants:
- It will lay a statutory instrument to amend the Coronavirus Act to extend the time period for suspension of evictions by forfeiture for non-payment of rent from 30 June to 30 September 2020, meaning no business will be forced out of their premises if they a miss a payment in the next three months.
- It will also lay secondary legislation to prevent landlords using Commercial Rent Arrears Recovery (i.e. seizure of tenant’s goods) unless they are owed 189 days of unpaid rent (the previous time period had been extended from 7 to 90 days). The time period for which this measure is in force will be extended from 30 June to 30 September 2020.
- An amendment to the Corporate Insolvency and Governance Bill has been tabled which will extend the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to Coronavirus until 30 September 2020.
What has not changed is the legal position that tenants are liable for covenants and payment obligations under the lease, unless this is renegotiated by agreement with landlords. For tenants who are not paying the full sums due under their leases (including rent, service charge, insurance contributions etc.), their arrears are continuing to accrue. Nor has the guidance from UK Government changed: tenants who are in a position to pay in full should do so. Tenants who are unable to pay in full should seek agreement with their landlord to pay what they can. This principle has now been embodied in a (non-binding) Code of Practice “to encourage commercial tenants and landlords to work together to protect viable businesses” which aims to support businesses to come together to negotiate affordable rental agreements.
As time goes on, however, it will become increasingly evident that there are tenants who cannot pay and those who simply will not pay. Landlords, who will also be feeling the financial squeeze, will become increasingly frustrated that their hands have been tied when faced with tenants who will not pay the rent despite having the means to do so.
Can’t pay or won’t pay?
The Code of Practice encourages tenants seeking concessions to be clear with their landlords about why this is needed. They should be prepared to be transparent and explain their request by providing financial information. Where tenants have received Government COVID-19 related subsidies or relief they should be applied to help meet business needs, including rent and other property costs. If a tenant has shown they have done that and there is still a shortfall Landlords should then provide concessions where they reasonably can.
For those tenants who will not pay, whilst the Government has sought to prevent perceived “aggressive rent collection” by landlords making use of the insolvency regime, there is no absolute prohibition on the service of statutory demands or the presentation of bankruptcy/winding-up petitions. A winding-up petition must, however, first be reviewed by the Court which will dismiss petitions where the company’s inability to pay is the result of COVID-19. While it is too early to say how the Court will reach its conclusion that COVID-19 has had a financial effect on the company or that the facts giving rise to the petition would have arisen in any event, with the new code of conduct encouraging tenants to be transparent about their reasons for not paying, a tenant who fails to provide that information to a landlord should do so with great caution as the courts may well find sympathy with a landlord in those circumstances.
Service of a statutory demand, as a precursor to a bankruptcy/winding up action, or just a threat of a winding-up petition, may lead a solvent tenant to pay, but a landlord may find itself propelled into urgent and costly proceedings initiated by a tenant who is prepared to argue that the reason for the arrears is because of COVID-19. To avoid an argument in Court as to whether the tenant has not paid its rent as a result of COVID-19 a landlord should press a tenant for its financial information, and a tenant would be wise to provide it. Otherwise, a landlord may simply wait until the restrictions have been lifted to serve a statutory demand or present a winding up petition.