The Government intends to enhance the protective measures introduced to help commercial tenants to ride the COVID-19 storm over the coming months.
In addition to the moratorium on forfeiture for rent arrears which gives tenants breathing space until at least 30 June 2020, there will be temporary changes to the right to use the usual additional remedies available to landlords including insolvency processes and Commercial Rent Arrears Recovery (CRAR).
The additional measures were announced on 23 April 2020 in response to steps taken by landlords to recover rent from tenants while many are unable to trade. Particular concern has been raised by the retail and hospitality sector but the measures will apply across the board, as with many of the other Government support packages.
Once passed, landlords will be unable to present a winding up petition in respect of rent arrears unless the Court is satisfied that the arrears do not relate to COVID-19. Similarly, statutory demands will be temporarily voided. CRAR will only be available if arrears have been outstanding for more than 90 days.
What does this mean?
While tenants will be relieved that there is further protection in this difficult time, landlords may be even more concerned given that they are unlikely to qualify for financial support or any leniency from their own lenders.
It is clear though that the tenant’s obligation to pay rent has not been altered, with landlords and tenants alike being encouraged to reach agreement on interim payments. Unlike the forfeiture ban (discussed here), the measures do not appear absolute and it may still be possible to take action using CRAR or via the Insolvency Courts.
While the Courts have not yet issued any guidance on the proposed moratorium, the guidance seems to suggest that
- There is a general rule that petitions will not be issued specifically in relation to tenants in the retail and hospitality sectors;
- Court permission to present a petition may be granted as an exception to the general rule.
Landlords wishing to pursue the winding up route will need to tread carefully. As the petition is presented without reference to the tenant, the onus is likely to be on the landlord to obtain permission of the Court first by setting out the grounds as to why they say their tenant is unable to pay the sums claimed and that this is not related to COVID-19.
Statutory demands are not a Court process and so practically may not be caught by the moratorium but the landlord may have additional work and hurdles to overcome before they are able to present a winding up petition.
The measures should differentiate tenants who cannot pay from those who will not. The emphasis for tenants is that they should pay what they can. Blanket refusals to pay without the evidence to establish that the arrears are genuinely COVID-19 related may not protect them if faced with a winding up petition.
Commercial landlords and tenants alike will need to consider where they stand in light of the new measures. Our experienced Property Litigation and Insolvency Teams are ideally placed to work with you to explore the options both in the short term and in planning ahead strategically.