Recovery of Rent – Further restrictions and options available to landlords
The government announced last Thursday that it will be introducing the following further temporary restrictions on a landlord’s ability to recover rent arrears from commercial tenants:
Statutory demands and winding up petitions issued to commercial tenants are to be temporarily voided where the failure to pay the rent is due to Covid-19.
CRAR (Commercial Rent Arrears Recovery) can only be used where there is 90 days or more of unpaid rent.
These new measures will be in force until at least 30 June, but may be extended as is the position regarding the government’s moratorium on forfeiture.
So, what can landlords do?
The rent is contractually due and the Coronavirus Act 2020 does not remove this liability. Defences raised by tenants regarding derogation from grant and frustration are unlikely to be successful (save potentially in relation to seasonal short term tenancies).
Where tenants have not paid their rent then landlords will need to consider the security they hold and also the ability to recover monies from sub-tenants, guarantors and former tenants.
Where such alternative methods of recovery are not available and the tenant is the only party liable to pay the arrears of rent, the landlord now has limited options to recover the arrears. The Government is asking landlords and investors to work collaboratively where businesses are unable to pay their bills during the COVID-19 pandemic. The Government is also requesting tenants to pay their rent where they can however with such limited remedies available to landlords, tenants may not consider there is any pressure to do so.
Landlords are in effect being asked to ‘invest’ in their tenants whilst the impact of Covid-19 is felt. However, the extent or ability of a landlord to agree to any concession will depend on the landlord’s own financial position. Rent concessions have been considered and given but if long term concessions are given, should the landlord not be entitled to something in return (as with any investment)?
Considerations could be that in return for a long term rent concession (where the landlord has the ability to support the same) the tenant relinquishes its break option, agrees to a landlord’s break, agrees to an extension to the lease term by the same period as the rent concession or takes a reversionary lease. Such agreements should be carefully documented by way of a side letter, deed of variation or further lease, taking account of the impact on rent reviews, alienation, guarantors, lenders consent, interest and costs.
Whilst the focus is on non-payment of rent and recovery of the same, tenants should, however, be aware that landlords may, when they are able to do so, seek to recover possession by way of forfeiture so as to avoid payment of statutory compensation where a redevelopment of the premises is proposed and the lease is protected by the Landlord and Tenant Act 1954.
Full details of the government’s announcement are set out in the following link: