Covid-19 update: Government Working Group to create a new code for the enforcement of non-payment of rent against commercial tenants

Only two months have passed since the Coronavirus Act 2020 received royal assent. It already feels like old news that commercial tenants are protected from landlords taking steps to forfeit commercial leases until 30 June 2020 (or longer if the Government deems it necessary). With the Government announcement of the extension of protection from eviction for residential tenants until 23 August 2020, it seems likely that an announcement regarding an extension of the protection for commercial tenants will follow shortly. Similarly, although the Corporate Insolvency and Governance Bill has not even been enacted, the use of statutory demands as a precursor to winding up a tenant company has been drastically restricted.

The Government has now announced that a working group has been established to create a new code of practice for the commercial sector in an effort to encourage co-operation between commercial landlords and tenants and provide clarity over rent payments, with a view to helping to protect viable businesses and aid financial recovery (please see our previous update on this). Commercial landlords will be eager to see whether the new code seeks to further restrict their ability to enforce non-payment of rent.

The Government’s actions to date have so far only delayed the inevitable challenge for tenants of how to pay arrears whilst also paying further rents as they fall due if landlords are not willing to compromise these. Although landlords’ options to recover rent have been restricted, rents under commercial leases are still accruing and options for enforcement have not been totally limited.

A loophole in the legislation on commercial rent arrears recovery (CRAR) (please see our previous update on this) means that this recovery option remains open for March quarter day arrears. However, CRAR may not be practical for some kinds of tenant businesses or desirable if the only realistic prospect of tenants being able to pay their rent is if they can resume trading as soon as possible.

It is currently still possible for landlords to commence Court proceedings by issuing debt claims for rent arrears and landlords are increasingly considering whether to proceed along these lines. Issuing a claim to recover rent arrears is simple enough. The investment by the landlord in the process and in particular the up front costs of issuing certainly seem worth it where the majority of these costs should be recoverable from the tenant. Consideration does need to be given to the inevitable delays in progressing claims particularly with the delays some Courts are experiencing at the moment, and the desire to have a tenant at the end of the process with sufficient assets to justify enforcement.

If you need any assistance with the matters addressed in this update, please contact Joanna Osborne, Eleanor Stark, or any member of the Property Litigation team.

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