This note provides an overview of possible landlord remedies for non-payment of rent by commercial tenants, in light of recent changes with COVID-19.
Some of the landlord remedies for non-payment of rent by commercial tenants include:
- Forfeiture (or re-entry), which is the landlord’s ability to bring a lease to an end due to non-payment of rent or breach of other tenant covenants.
- Service of a statutory demand, which is a written demand for payment of a debt (i.e. unpaid rent). If the demand remains unsatisfied after 21 days, this can be used to support a winding up petition (i.e. as evidence that a company is unable to pay its debt).
- A money claim through the County Courts, which could possibly also include a claim against a guarantor.
- Commercial rent arrears recovery (CRAR), where a landlord can take control of a tenant’s goods and sell them at auction with the proceeds of sale being applied against the arrears.
- Use of rent deposit deed.
However, the landlord’s toolbox has been weakened by recent legal changes, which have been brought in to mitigate against the challenging economic climate. In particular:
- Section 82 of the Coronavirus Act 2020 prevents landlords from forfeiting any business tenancy for non-payment of rent, whether by Court action or peaceable re-entry, between 26 March and 30 June 2020 (may be extended). Where there are existing proceedings, orders for possession may only take effect after 30 June 2020.
- Practice Direction 51Z stays possession claims and enforcement action until 23 August 2020 (except for trespass claims, interim possession orders and agreed case management directions).
- The Taking Control of Goods and Certification of Enforcement Agents (Amendment) (Coronavirus) Regulations 2020 has introduced changes which means CRAR will only be available if there are 90 days of rent arrears (up from 7 days). This will apply whilst the above mentioned protections from forfeiture are in place under the Coronavirus Act 2020.
- With the Corporate Insolvency and Governance Bill (not yet introduced) further changes are expected including that from 27 April 2020 no petition to wind up a company will be permitted where it is based on a statutory demand (served between 1 March 2020 and 30 June 2020, or one month after the Bill comes into force) or where a company’s inability to pay has been caused by the COVID-19 pandemic.
Landlords are in challenging terrain. Forfeiture for non-payment of rent will not be possible until July 2020 (at the earliest). Forfeiture remains available only for non-rent grounds effected by peaceable re-entry and where service of a section 146 notice is first required. Forfeiture is unlikely, however, to be desirable in view of challenges of re-letting premises in the current economic climate and the landlord may find itself with an empty premises (at risk to property damage and squatters).
With the expected changes with the Corporate Insolvency and Governance Bill, winding up petitions could, for instance, be dismissed if the tenant’s inability to pay has arisen from the COVID-19 pandemic. See also the case of A Company (Injunction To Restrain Presentation of Petition)  EWHC 1406 (Ch), which was heard on 1 June 2020; in this case Mr Justice Morgan made an order restraining the presentation of a winding up petition on the basis of the Corporate Insolvency and Governance Bill (not yet enacted).
A money only claim remains possible, although there are likely to be delays due to the backlog of Court cases. Enforcement of any money judgment needs to be carefully considered prior to commencing Court proceedings, as the risk of company insolvency is much higher. The remedy of CRAR is likely to be quite limited too (i.e. due to social distancing measures, it may be difficult to take control and auction goods).
Landlords may therefore wish to look at claims against former tenants or guarantors or make use of a rent deposit deed (if available). Note, there is a strict 6-month time limit to recover sums from former tenants or guarantors, on which we can provide further advice. Landlords and tenants should also try to work together during this difficult period to reach compromises. Amongst other things, landlords may need to consider rent deferrals or temporary concessions. Landlords should take further advice and exercise care when sending side letters to avoid permanent variations to terms of a lease.