It is now a month since the Chancellor announced that commercial tenants unable to pay rent because of coronavirus would be protected from eviction. Although the measures that were trailed, and the messaging itself, encouraged landlords to be constructive with their tenants, the Business Secretary Alok Sharma saw the need this afternoon to go further, by announcing further measures that are clearly intended to leave landlords in no doubt that more is required of them.
23 March – Don’t evict commercial tenants
The emergency Coronavirus Bill announced by the Chancellor on 23 March was supposed to mean that no business would be forced out of their premises should they miss a rent payment during the three months for which we were then (supposedly) to be locked down. The effect of near zero footfall on retail and hospitality (already in the doldrums) was immediately obvious, and yet the rent quarter day came, and rent would still have to be paid. We reported on these measures on 26 March and, as even the best laid plans falter, it was perhaps no surprise that whilst the emergency Coronavirus Bill sought to lock the front door to landlords recovering their premises, other recovery routes were not addressed.
On the back of the Chancellor’s announcement, the British Property Federation offered the support of its (landlord) members to business. However, one month on, the government needed to act again. Perhaps landlords had missed the first message ?
23 April – Don’t try to wind them up either
A winding up petition is a potent weapon. The very existence of a petition causes significant harm to the debtor company; even without advertisement, a petition can be seen by bankers and credit reference agencies. Where the tenant is in arrears for a sum in excess of £750, a landlord is able to present a petition for the compulsory liquidation of the tenant. It is a misconception that the intermediate step of a statutory demand is required. It is not. It is a useful hint to the tenant that the landlord is serious, and a failure to pay, settle or apply during the 21 day period following service establishes a statutory presumption of insolvency but, where the object is forfeiture, moving straight to a petition is an option.
In order to prevent “aggressive rent collection and closure” the Business Secretary today announced that any petition founded on unpaid rent would first have to be “reviewed” by the court to determine the basis on which it is being presented. There is a lack of detail but the drift is that a petition based on an inability to pay rent because of the pandemic will be refused . The announcement includes statutory demands but, as a statutory demand is a document that is not presented to the court until the petition is presented, perhaps the intention is to exclude rent default from the sum for which a demand can be presented. No doubt there will be a further announcement.
23 April – And don’t try CRAR
CRAR is the Commercial Rent Arrears Recovery procedure by which landlords can recover rent arrears by seizing the defaulting tenant’s goods. Generally speaking, it applies only to commercial tenants and only in relation to the principal rent. The procedure involves service of a 7 day notice and a certified enforcement agent, not your usual bailiff.
That was then. This is now: a statutory instrument (SI) will now be pushed through by which landlords cannot use CRAR unless they are owed 90 days’ rent. The practical consequence of this announcement is that unless landlords beat the SI and, arguably, complete the process by the time it is enacted, the unpaid rent from the March quarter day cannot form the basis of a CRAR notice.
There are always two sides to any argument. Not every landlord is an inflexible pension fund advised by unsympathetic commercial agents. Not every tenant’s inability to pay is a direct function of the pandemic. For every landlord concerned to ensure payment in full, there is a corporate tenant thinking of divesting themselves of unprofitable or over-rented sites.
There is reasonableness to be had on both sides; tenants with cash reserves need to consider landlords with no institutional backing, just as institutional landlords need to consider the cashflows of, even, chain tenants. There are opportunities for both sides of this discussion to re-negotiate the terms of their relationship; whether that is a temporary rent holiday, deferment, or longer term amendments to break clauses, the term of the lease, or the sums payable. There is little to be gained from displacing the tenant’s pain to the landlord without there being in place balancing forbearace. Today’s announcement is a welcome step that gives further clarification. We wonder, however, how long it will be before the government has to ask landlords not to appoint a LPA receiver or seek to appoint an administrator to the tenant company, given that neither step seems to have been mentioned yet?
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