COVID- 19 Update: Landlord and Tenant
Key Contacts: Hugh Hitchcock & Gareth Baker
Authors: William Rees & Charlotte Whitehead
In response to the Coronavirus pandemic, the legislative landscape continues to evolve at a rapid pace to the emerging issues facing businesses.
The Coronavirus Act 2020 (the “Act”) which came into force at the end of March, introduced provisions in S82 preventing landlords from using the remedy of forfeiture against their tenants for non – payment of rent during the current quarter.
Importantly, the scope of S82 of the Act left other remedies available landlords to exert pressure on their tenants to pay. These remedies include: winding up proceedings, applying for a county court judgment against the tenant, and the Commercial Rent Arrears Recovery (CRAR) regime, which, when utilised, allows the Landlord to take control of the premises and sell property belonging to the tenant in satisfaction of an outstanding debt.
However, business secretary Alok Sharma announced yesterday that further measures are now imminent. These measures include:
- statutory demands and winding up petitions issued to commercial tenants to be temporarily voided where a company cannot pay their bills due to coronavirus; and
- prevention of landlords using CRAR unless 90 days or more of unpaid rent is owed.
The new measures are due to be set out in the Corporate Insolvency and Governance Bill, which will supplement the Act.
Guidance on the implementation on the above measures sets out that “The law will not permit petitions to be presented, or winding-up orders made, where the company’s inability to pay is the result of COVID-19”. The causal link between COVID-19 and non -payment appears to be a very low threshold for a non – paying tenant to satisfy. As yet, the guidance remains vague and consequently application of the new measure could be the subject of litigation.
The government announcement further set out that landlords and investors will be asked to work collaboratively with high street businesses unable to pay their bills during COVID-19 pandemic.
The above represents a somewhat bleak picture for landlords during this period who of course have their own outgoings to meet. Whilst the legislation urges tenants to ”pay what they can” in practical terms from some of our landlord clients own experiences many tenants are already treating the moratorium in an aggressive and opportunistic manner and will claim this new legislation will hugely exacerbate that. It also creates an unfair playing field and removes any incentive or leverage to agree fair and sensible interim payment arrangements. In what may be some consolation, the Government’s announcement referenced above reports that The FCA, FRC, and PRA bodies have intervened and issued a statement encouraging landlords’ backers such as investors and lenders to take into account the issues arising directly from the COVID-19 pandemic in responding to potential breaches of covenants by landlords. Whether or not landlords also get some protection in law remains to be seen.
If you have any questions in relation to impact of the Coronavirus Act or the Corporate Insolvency and Governance Bill on the property market, please contact Gareth Baker in our Real Estate Team or Hugh Hitchcock in our Dispute Resolution Team.