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After an anxious wait for commercial tenants, the Government revealed on 19 June 2020 their plans to further assist businesses through the Coronavirus pandemic.

Although further legislative changes will be required before these measures come into force, these plans include:

  1. An extension to the current ban in place prohibiting landlords from forfeiting commercial leases due to a non-payment of rent until 30 September 2020;
  2. The ban on landlords using the CRAR (Commercial Rent Arrears Recovery) procedure until 30 September 2020 unless they are owed 189 days’ worth of unpaid rent; and
  3. The extension on the temporary ban on the use of statutory demands and winding-up petitions where a business cannot pay its creditors due to the Coronavirus outbreak until 30 September 2020.

Furthermore, the Government has also released a code of practice for all commercial landlord and tenant relationships during the Coronavirus pandemic.

The key points of which are:

  1. Those tenants who are in a position to pay their financial obligations under their leases in full should do so (unless this has been renegotiated by the respective parties);
  2. Those tenants who are not in a position to pay in full should seek a renegotiation regarding these payments under their leases. Landlords should consider any reasonable case put forward by a tenant whose business has been hit by the pandemic;
  3. Tenants who are seeking concessions from their landlord should clearly explain why they are needed and provide financial information showing this. At the same time, landlords who refuse concessions should explain why they have done so, taking into account the information provided by the tenant;
  4. The Government has offered options for agreements that could be reached by landlords and tenants which include:
    1. Full or partial rent-free periods;
    2. Full or partial rent deferral periods;
    3. Rent payments becoming monthly instead of quarterly;
    4. Rental reductions;
    5. Landlords drawing from rent deposits and not requiring tenants to replenish the deposit until it is reasonable to do so;
    6. Landlords waving default interest on rent that has been paid late; and
    7. Any of the above in return for an incentive for the landlord, for example an extension to the current lease term or the removal of a tenant break right.

The code also references service charge and insurance payments. Again, the Government states that where these can be paid in full by a tenant then they should.  However, the following recommendations have been made:

  1. A reduction in service charge should be made where the lack of use of the property has lowered the service charge costs;
  2. Changing service charge payments so that they are spread over a shorter period of time;
  3. Where there is a known reduction in service charge due to the lack of use of a property, any reduction should be passed on to the tenant as soon as possible; and
  4. Landlords should ensure that management fees being charged are for works that are being incurred for managing the services and service charge during the pandemic.

It should be noted that the code is only a voluntary process to be agreed between landlord and tenant and does not change the existing contractual relationship between any landlord, tenant and guarantor.

Overall, this will come as a relief, albeit perhaps a not unexpected one, for commercial tenants.

Whilst now that it is clear that landlords cannot bring forfeiture or CRAR proceedings until the end of September 2020 in relation to the non-payment of rent this does not mean that tenants are off the hook for unpaid rent for the March and June quarter days.  It therefore remains important that tenants actively engage with their landlords to hold discussions concerning the rent arrears and how these are to be treated or dealt with and also for landlords to ensure that they are complying with the code (particularly if enforcement steps do become necessary further down the line).

With regard to the plight of landlords, the Government has not shown any signs of providing specific financial support particularly in relation to unpaid loan payments.  There are of course the various Government loan schemes which have been around for several months but these will only be of assistance to certain landlords and may well not necessarily assist with the ongoing damage being caused by the non-payment of rent by tenants.  The Government has encouraged banks and lenders to allow time to their borrowers particularly where any loan default is due to other matters such as non-payment of rent but this is only guidance.

It seems to us, therefore, that this is storing up this particular issue until the autumn although we are seeing quite a number of tenants taking advice on possible CVAs or other means to reduce their liabilities to landlords. We will see more of what they intend over the coming weeks.

Our own experience since lockdown commenced is that some landlords and tenants are negotiating and agreeing terms with regard to the non-payment of rent which in a number of cases includes matters such as lease extensions, the removal of break clauses, partial payment of rent and the deferral of rent to an agreed payment pattern over an extended period.

Where we have seen conversations between landlords and tenants and disclosure by tenants as to their actual circumstances, the terms then agreed have produced a suitable compromise to allow the tenant to carry on in occupation.  Moreover, it gives certainty to landlords as to how the rent arrears will be dealt with and in many cases the willingness to “invest” in their tenants or their properties by allowing the deferral of rent or, in some cases, cancellation.

Those tenants who have chosen not to hold a dialogue with their landlord will, in our view, only be storing up the current problems of non-payment of rent until October 2020 when the moratorium will presumably come to an end and the economy having reopened by then. We expect a flurry of activity at that time by landlords in forfeiting leases or serving statutory demands or using CRAR to try to get tenants to face up to how the non-payment of rent is to be dealt with.

If you have any queries about this topic, please contact Harry Rudolf, Stephen Brower, or any member of the Commercial Property team.

 

Please note that this blog is provided for general information only. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content of this blog.

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