23/11/20 – How can landlords protect their income?

Since the beginning of the Covid-19 pandemic, the government has enacted legislation intended to relieve the pressure on businesses which were struggling to pay their rent during the crisis. The legislation has prevented landlord and their managing agents from using forfeiture, bailiff action or issuing statutory demands / winding up petitions to recover unpaid rent.

Landlords were told that the measures were temporary – to give tenants some breathing space during periods of forced business closure. However, the government have again extended the effect of the protections afford by this legislation at a time when the majority of businesses have reopened in some form or other.

So where does this leave commercial landlords, and what can they do to protect their income and reduce further losses? Below is a summary of the current position.

ENFORCEMENT TYPE CURRENT POSITION
Forfeiture (by proceedings or peaceable re-entry) Prohibited for rent arrears until 31 December 2020
Commercial Rent Arrears Recovery (CRAR) Rent arrears from March onwards are effectively protected from enforcement by bailiffs until 31 December 2020
Statutory demands / winding up Both prohibited until 31 December 2020, unless a landlord can show a tenant has not been adversely affected by the pandemic.
Court proceedings Permitted
Action against former tenants and guarantors Permitted
Draw down on rent deposits Permitted
Claims against sub-tenants Permitted but the CRAR rules are relevant

Forfeiture

The Coronavirus Act 2020 introduced a moratorium on commencing forfeiture proceedings for non-payment of rent or from peaceably re-entering premises for non-payment of rent. This moratorium has now been extended to 31 December 2020.

Commercial Rent Arrears Recovery (CRAR)

CRAR is the process where bailiffs can enter the premises to seize good following seven days’ notice. The Covid legislation effectively created a moratorium from the March quarter onwards. CRAR can be used but the periods of rent arrears required to exercise this remedy have been significantly extended.

From 29 September to 24 December 2020 – minimum of 276 days rent overdue

From 25 December 2020 – minimum of 366 days rent overdue.

Statutory demands and winding-up

The service of statutory demands and on issuing winding-up petitions by landlords against tenants has also been extended until 31 December 2020, unless it can be demonstrated by the landlord that COVID-19 has not had an effect on its tenant’s ability to pay its rent.

Court debt proceedings

Landlords can issue formal court proceedings for non-payment of the rent, however due to the lockdown, the inevitable backlog of cases, and the numbers of possible new cases, there may be a delay in the time for cases to get to hearing.

Former tenants and guarantors

Landlords can pursue claims against former tenants and guarantors by serving notice pursuant to s. 17 of the Landlord and Tenants Covenants Act 1995.

Rent deposits

Landlords can draw down on rent deposits to cover all or part of the arrears and request that the deposit is topped up.

Sub-tenants

Landlords can seek rent directly from a subtenant to clear any arrears due from the tenant. However, the rules which prevent landlords using CRAR are relevant for this remedy.

For further information, please contact Gautam Sirpal, Associate Director, Portfolio Management, via email to gautam.sirpal@argroup.co.uk.