Rent arrears – guidance for commercial landlords
The COVID-19 pandemic and the subsequent government restraints introduced, have caused a significant challenge for commercial landlords in recovering rent arrears. Head of Dispute Resolution Richard Gore, and solicitor Holly Snook explain in more detail what actions landlords can take to recover rent arrears, and how to prepare for the lifting of the eviction ban on 31 March 2021.
Forfeiture of the lease for non-payment of rent
- In anticipation of 31 March 2021, landlords should examine the forfeiture clause in the lease, wait for expiry of the relevant period, where necessary to do so serve a Section 146 notice, and then forfeit a lease by either peaceably re-entering (peaceable to the person and not to the property/excessive force must not be used) the property and changing the locks or alternatively by going to court to bring forfeiture proceedings against a tenant.
- There are various pitfalls associated with this procedure and as such we would recommend that advice is sought in advance of the relevant rent due date.
Commercial Rent Arrears Recovery (CRAR)
- CRAR is a method of enforcement to recover rent arrears relating to tenancies of a commercial property, subject to some exceptions. From 31 March 2021, if commercial net unpaid rent is equal to 366 days, a landlord can instruct an enforcement agent to attend the premises and seize tenants’ goods on site and sell them to recover an equivalent value to the unpaid rent.
- Before doing so, the landlord must serve the tenant with sufficient notice.
Statutory Demands/Winding Up petitions
- A statutory demand is a 21-day formal demand for payment which can be served against an individual or company, following which time a bankruptcy/winding up petition is issued.
- There is a temporary suspension of the use of statutory demands against companies until 31 March 2021. However after 31 March 2021, a debtor who, for three weeks, fails to comply with a statutorydemand for a debt of more than £750 (for companies) is at risk of having winding-up proceedings issued against it.
- There is currently a prohibition on presenting a winding up petition based on a statutory demand served between 1 March 2020 and 31 March 2021; and a prohibition on presenting a winding up petition unless the creditor can overcome the ‘coronavirus test’. The creditor should have reasonable grounds for believing that the company would still have been insolvent irrespective of the impact of Covid-19. There are also likely to be additional hearings before which the winding up petition can be heard at a final hearing.
- Individuals are not afforded the same protection and it is possible to serve a statutory demand for a debt of more than £5,000 and bankruptcy petition against an individual.
The commercial evictions ban has been extended for a further 3 months to 30 June 2021. This means that commercial landlords cannot forfeit a lease for non-payment of rent during that period.
Forfeiture for other breaches of a lease can still take place although these will require appropriate notice to be served first.
The ability to enforce for rent arrears via CRAR (Commercial Rent Arrears Recovery) has also been amended. The total number of days’ outstanding rent required for CRAR to be used will be 457 days’ between 25 March and 23 June, and 554 days’ between 24 and 30 June.
The justification behind the decision is to help those worst affected by the pandemic, such as bars and restaurants, to get back to business in May when doors fully reopen for hospitality no earlier than 17 May. Despite that it will continue to provide a frustrating position for a lot of commercial landlords faced with increasing rent arrears and reluctant tenants.
Debt recovery proceedings
There are currently no restrictions on landlords issuing claims in the County Court and the High Court to recover arrears of rent from tenants, although in some circumstances there are limits on the enforceability of judgment debts arising from the court proceedings.
Specialist legal advice for commercial landlords
In every instance, it is recommended that before landlords and tenants take any action, they seek advice as to the options available in their specific situation.
If your clients are experiencing difficulties and would like advice about how to best navigate any of these aspects, our Dispute Resolution legal team is on hand to help. Please call 0117 906 9400 or email email@example.com. Alternatively, please use our contact form.