Back in 2020, when the Covid-19 pandemic was in full swing, the government brought in a range of measures that effectively curbed the right of landlords to recover rent arrears from commercial tenants, regain possession of premises from those who had fallen behind in their payments, and prevented landlords from forfeiting leases. Commercial solicitors for landlords up and down the country were inundated with queries and were busy providing commercial landlords advice for those affected.
Initially, there was an ‘end date’ in sight when landlords could start to try and recoup the losses and arrears they’d incurred during the height of the pandemic. However, recently the rug has been pulled out from underneath landlords, as under the Coronavirus Act 2020, the moratorium that prevents eviction or foreclosure of commercial leases on the grounds of non-payment has been extended to the 25th March 2022.
A moratorium on debt recovery
Prior to the Covid-19 crisis and the instigation of the 2020 Act, landlords were entitled to remove goods under the Commercial Rent Arrears Recovery clause if a total of 544 days’ rent was outstanding. Now, the right to carry out recovery has been postponed until March 2022.
The Corporate Insolvency and Governance Act 2020 had also stopped landlords from presenting a winding-up petition (unless they believed that Covid-19 was not the primary cause of the debtor’s financial insolvency). That has now been rescinded and may be one of the only ways commercial landlords can begin to claw back some of the losses they’ve incurred over the past two years.
An uneven playing field
The government is aware that certain sectors, such as retail, catering, and hospitality, have suffered far more of an impact than others, and sector-specific legislation is due to be introduced that will help landlords (and their tenants) tackle rent arrears without devastating the tentative shoots of recovery that we’ve seen in the past couple of months. The new system will apply only to businesses that have been directly affected by the pandemic, and those who have carried on trading normally will be subject to the previous legislation, meaning landlords can take action to recover overdue rent payments.
One of the elements is a ‘ringfenced arrears’ concept, which means that the new legislation will only apply to debts built up from March 2020 onwards. Debts or arrears before that period (and any that are accrued after the moratorium has been lifted) are not protected and landlords are well within their rights to pursue these outstanding payments. Commercial property solicitors in London are recommending that both landlords and tenants tackle these earlier outstanding debts first through negotiation and if things escalate, arbitration when a resolution cannot be reached between the landlord and the tenant.
If outstanding debts date back to before March 2020 then landlords also have the right to circumvent the ‘no eviction’ rule, especially if the tenant has breached other conditions of their tenancy agreement or lease.
Is it going to work?
There’s concern on both sides that the extension of the moratorium will result in tenants building up ever greater levels of debt, and landlords struggling to stay afloat while having almost no income from their properties. However, the pandemic has changed everything, and commercial solicitors for landlords are seeing an influx of queries from property owners desperate for guidance on what to do next. Currently, the situation is at a stalemate, and while the full range of rent debt recovery options is not available, the only other option that landlords have is to pursue the claims through the civil courts. The capital has been particularly badly affected by the commercial rent arrears crisis, and commercial property solicitors in London are advising landlords to consider all the options available to them, including civil action.
Of course, the time and additional costs of this method of debt recovery have to be factored into the overall cost, but there have been a series of successful civil cases recently where the courts have found in favour of the landlord. Acting now may also allow landlords to take full advantage of the renewed availability of winding up proceedings post-September 2021, as the judgement can be used as proof of inability to pay on the part of the tenant.
Nobody has come out of the Covid crisis unscathed, and both commercial tenants and landlords have been hit hard. If you’re a commercial landlord and you’re worried about rent arrears and how to recoup your losses, talk to one of our commercial solicitors for landlords and get expert, no-nonsense and up-to-the-minute advice today.