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Swings and Roundabouts for Enforcement of Commercial Rent Arrears

The Coronavirus Act 2020, which was first introduced in March 2020, imposed a moratorium on most enforcement measures available to commercial landlords for recovering commercial rent arrears. This moratorium is due to be lifted on 25 March 2022. In addition, restrictions which were imposed by the Corporate Insolvency and Governance Act 2020 on winding up petitions are also due to end on 31 March 2022.

As a result, (and subject to the ringfenced debt provisions detailed below) commercial landlords will soon have the same enforcement options available to them prior to the pandemic, including:

  1. CRAR (Commercial rent arrears recovery) – from Saturday 26 March 2022, CRAR can once again be exercised once tenants owe at least 7 days’ rent arrears, (instead of 554 day’s rent).
  2. Forfeiture – from Saturday 26 March 2022 landlords will once again be able to forfeit leases for non-payment of rent or other sums. The period set out in the lease, that usually gives tenants 14 or 21 days to pay before a landlord can forfeit, will still apply.
  3. Winding-up petitions – from 1 April 2022 landlords can serve statutory demands and bring winding up petitions against tenants who owe undisputed debts of more than £750, instead of £10,000.

However, landlords must be wary of the Commercial Rent (Coronavirus) Bill 2021-2022 (‘the Bill’). The Bill is due to be enacted on 25 March 2022 and introduces another moratorium for six months (until 25 September 2022) in relation to rent debt which is ringfenced i.e. rent debt accrued during the ‘relevant period’. You can read our full Q&A on this Bill here.

The ‘relevant period’ is any period where a business was subject to mandatory closure due to the pandemic. For example, for non-essential retail and leisure businesses in England, this is the period from 21 March 2020 to 12 April 2021.

These arrears of rent and other sums (known as a ‘protected rent debt’) will be ‘ringfenced’ during this six-month moratorium period, offering tenants protection from enforcement by preventing landlords from exercising their usual remedies (including the enforcement action listed above).

The Code of Practice for Commercial Property Relationships Following the Covid-19 Pandemic published on 9 November 2021 contains a table which may assist landlords in working out the ‘relevant period’.

Importantly, if a tenant was not subject to any mandatory closures, e.g. essential retailers, among others, arrears will not be a protected rent debt and the moratorium in the Bill will not apply.

For any protected rent debt the Bill introduces a new binding arbitration process, intended to determine whether this debt is payable and, until 25 September 2022, the only enforcement options available to landlords for protected rent debt will be:

  1. Reach an agreement to settle the arrears with the tenant;
  2. Await a statutory arbitration decision (if either the landlord or the tenant refer the matter to arbitration for a determination); or
  3. Wait until after 25 September 2022 to take action.

If landlords do wish to take action to recover rent arrears they should therefore first check if the arrears are a protected rent debt as if they issue proceedings in respect of a protected rent debt, these will either be dismissed or stayed by the Court.

Details relating to the Arbitration process remain unclear, however an award can lead to a full or partial write off, a deferral of the payment of the debt for up to 24 months, or an order that the debt is payable. 

The introduction of this further moratorium for protected rent debt from 25 March 2022 creates uncertainty as its proposals are still untested. However, this does only apply to protected rent debt and landlords can therefore pursue other arrears.

Any landlords wishing to take enforcement action should consider taking legal advice on the options available to them as, for example, if the desired outcome is to terminate the lease by forfeiture this may not be possible for historic arrears if the right to forfeit is waived.

For tenants, as landlords may shortly be pressing for payment, restructuring options may assist you.

We would be happy to guide you through the processes. If you would like more information please get in touch with our Property Litigation Team or Restructuring and Insolvency Team who would be happy to assist.

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