New rules to govern the landlord and tenant relationship – payment of rent
We recently reported on the provisions of Section 82 of the Coronavirus Act 2020 relating to the moratorium on forfeiture of commercial tenancies for non-payment of rent (currently in place for the period 27 March 2020 to 30 June 2020). We reported that the Act does not remove the tenant’s liability to pay rent, rather it limits the landlord’s rights in respect of non-payment and therefore a non-paying tenant still faces the possibility of being faced with a statutory demand or other means of debt recovery during this period.
Whilst, in our experience, many landlords have been prepared to enter into rent concession agreements others have sought aggressively to collect in the rent. To try and ensure that businesses are kept afloat so that they can continue to provide the jobs our economy needs beyond the Coronavirus crisis, the Government is now looking to introduce temporary new measures to safeguard commercial tenants against aggressive debt recovery during the current pandemic as well as asking landlords and investors to work collaboratively with businesses unable to pay their bills during the pandemic.
The Government has proposed the following steps:
- Statutory demands and winding up petitions issued to commercial tenants to be temporarily voided
- Changes to be made to the use of Commercial Rent Arrears Recovery, building on measures already introduced in the Coronavirus Act
Statutory demands and winding up petitions
The Government has proposed to temporarily ban the use of statutory demands (served between 1 March 2020 and 30 June 2020) and winding up petitions presented from Monday 27 April, through to Tuesday 30 June, where a company cannot pay its bills due to Coronavirus. Under these measures, any winding-up petition that claims that the company is unable to pay its debts must first be reviewed by the court to determine why. The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of Coronavirus. The proposed new legislation to protect tenants will be in force until 30 June 2020. That period may, however, be extended in line with any extension of the moratorium on commercial lease forfeiture. This will help ensure these companies do not fall into deeper financial strain.
Commercial Rent Arrears Recovery (CRAR)
The Government is also laying secondary legislation to provide tenants with more breathing space to pay rent by preventing landlords using Commercial Rent Arrears Recovery (CRAR) unless they are owed at least 90 days of unpaid rent.
Whilst we await the precise details of the legislation to be enacted these measures should help to safeguard businesses during this time. However, while landlords are urged to give their tenants the breathing space needed, the Government calls on tenants to pay rent where they can afford it or what they can in recognition of the strains felt by commercial landlords too. What is clear is that in the context of the statutory demand and winding up petition processes, tenants will need to have very good financial records and evidence to substantiate their position.
Undoubtedly the big test for relationships between landlords and tenants will come post-24 June, the next rent quarter day.