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Government announces additional measures to protect business tenants from debt recovery actions

Commercial landlords have been temporarily prevented from taking action against tenants who have failed to pay their rent due to the pandemic.

The government has recently announced additional emergency measures to protect business tenants from debt recovery actions during the coronavirus crisis. The new measures are additional to the existing provisions of the Coronavirus Act 2020.

Section 82 Coronavirus Act 2020

On 27 March 2020, s.82 Coronavirus Act 2020 suspended a landlord’s right to forfeit a commercial lease for non-payment of rent for a limited period of time (until 30 June 2020, with scope to be extended).

Commercial tenants however remained exposed to other methods of rent recovery, such as Commercial Rent Arrears Recovery (CRAR), statutory demands and winding up petitions.

In response, the Government has recently announced additional measures to protect business tenants, which will also be in force until 30 June 2020.

Details of the additional measures to be introduced

  • The issue of statutory demands to commercial tenants where a company cannot pay bills as a result of the effects of coronavirus is to be suspended;
  • Any winding up petition will first be reviewed by the court. Where the company’s inability to pay is a result of the coronavirus crisis, the petition will not be allowed to proceed;
  • The use of Commercial Rent Arrears Recovery (CRAR) will only be allowed where landlords are owed 90 days or more of rent. However, the 90-day limit will not protect tenants who pay their rent quarterly in advance where a whole quarter’s rent is unpaid.

What the additional measures mean for landlords and tenants

Commercial landlords have been temporarily prevented from taking effective action against tenants who have failed to pay their rent as a result of the coronavirus crisis.

However, as previously, the measures are only temporary.

While landlords have been urged to give tenants the breathing space needed, the Government has also called upon tenants to pay what they can afford towards rent in recognition of strains felt by commercial landlords.

Financial regulators have also urged investors and lenders to take coronavirus issues into account, should landlords face potential breaches of debt covenants.

What happens after 30 June 2020?

After 30 June, or such later date as the Government may specify, the protection afforded to tenants will fall away. In the meantime, rent will continue to accrue as usual.

Therefore, unless the rent is brought up to date, or a suitable concession agreement is put in place - and assuming that no further relevant legislation is passed - the landlord will regain all rights.

Many tenants, especially in sectors which have been hardest hit by the coronavirus crisis, are currently seeking rent concessions from their landlords, to defer or to suspend rent payments.

As the measures introduced encourage landlords and tenants to work collaboratively when tenants are struggling to pay rent, it would still appear to be sensible for tenants to seek rent concessions from their landlords where appropriate and where landlords are willing to grant such concessions.

If the content of this update raises any issues for you, or you would like to discuss, please liaise with Peter Hall, Principal Associate, peter.hall@weightmans.com.

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