Moratorium on Winding Up Petitions and Lease Forfeiture
Commercial landlords and business tenants are the beneficiaries of a number of covid-19 related measures designed to provide financial help and security in the short and long term. Without the emergency measures, many retailers, restaurants and the like will be particularly at risk of collapse.
The Ministry of Housing, Communities and Local Government (MHCLG) has encouraged the parties to work together; and some of the measures introduced go a long way to facilitate this and to minimise heavy handedness on the part of landlords. Tenants, for instance, are encouraged to pay what they feel able to during the pandemic and landlords cannot issue proceedings for unpaid rent until 30 June 2020 (subject to further review).
Importantly, open and transparent communication and mutual agreements should underline the landlord and tenant relationship to ensure each party can ride the storm.
Statutory demands can be issued by landlords in response to unpaid rent – indeed, in respect of any unpaid and admitted debt exceeding £750; but ensuing proceedings such as winding up petitions are suspended (see below).
Further emergency measures cover:
Winding up petitions: the Corporate Insolvency and Governance Bill provides for a temporary ban on the presenting of winding up petitions to 30 June if a company is not able to pay its rent or other bills because of the pandemic. Further, the court must now first review any winding-up petition presented that claims a company is unable to pay its debts. However, the detail is unclear including when or at what point the court might review a winding up petition.
Commercial Rent Arrears Recovery (CRAR): commercial landlords cannot use the CRAR process to recover unpaid rent until the rent accrued covers 90 days or more. CRAR is the statutory procedure allowing landlords to take control of tenants’ assets and sell them to recover rent arrears. Under normal circumstances, landlords can use CRAR when seven days or more of rent arrears is owed and they must also give seven days’ notice of enforcement. The extension of 90 days’ accrual of rent is clearly a substantial tightening of the rules during the crisis which commercial tenants will welcome.
The limitation on its use imposed by the government provides a welcome temporary relief to tenants who are hard hit by covid-19.
Forfeiture: there is a temporary moratorium on the exercise of forfeiture rights by landlords. Forfeiture rights ordinarily allow commercial landlords to end the lease and remove tenants from the property for breach of the lease’s rent terms (or other significant breach depending on the specific lease terms). These rights have been suspended under the Coronavirus Act until 30 June (subject to review). All commercial occupiers of rental property are protected, including sub-tenants, and possibly licensees in occupation.
Once the moratorium is lifted commercial tenants will be at immediate risk of landlords exercising their forfeiture rights. For now, the earliest a commercial landlord can take any forfeiture action is 1 July 2020 – or later if the period of suspension is extended.
There is the inherent problem that while the devil is in the detail – the detail is missing. However, it has always been clear that the overarching motivation of government in introducing the temporary rules was to shield businesses as much as possible from the immediate to short term effects of being unable to pay rent because of covid-19.
Now that the lockdown restrictions are starting to be eased incrementally and the retail sector is expecting to start opening up imminently, the hope is that businesses will start to see their income rise - along with their ability to pay their rent and other debts.
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