Lockdown 2: timely reminder of commercial tenant protections

As England enters its second period of lockdown, commercial landlords are reminded that the temporary measures put in place by the UK Government earlier this year, protecting commercial tenants from eviction and the operation of CRAR and restrictions on the use of certain insolvency processes, are set to continue during the second lockdown and beyond.

The measures are intended to protect business tenants that are unable to pay their rent as a result of the COVID-19 pandemic. 

The key measures during lockdown 2

1. Pursuant to the Coronavirus Act 2020, which came into force on 26 March 2020, landlords are prohibited from exercising forfeiture for non-payment of rent until 31 December 2020 if the tenant’s failure to pay is a direct result of the pandemic. The restrictions apply to forfeiture proceedings in Court, as well as the exercise of forfeiture by “changing the locks” and the definition of rent extends to any sum payable under a business tenancy, including service charge, insurance and interest.
2. Landlords are prevented from exercising CRAR (Commercial Rent Arrears Recovery) to recover arrears of rent unless 276 or more days’ net rent is owed for the period until 24 December 2020 rising to 366 days’ net unpaid rent from 25 December 2020 (Taking Control of Goods (Amendment) (Coronavirus) Regulations 2020 (SI 2020/1002). 
3. As a result of the Corporate Insolvency and Governance Act 2020 (CIGA 2020), which came into force on 26 June 2020, the use of statutory demands and winding up petitions to recover arrears is prohibited until 31 December 2020 unless the landlord has reasonable grounds to believe that the pandemic has not had a financial effect on the tenant or the tenant would have been unable to pay its debts even if the pandemic had not had a financial effect on the tenant. We have previously discussed the full impact of the measures introduced by CIGA 2020 in our Legal Update: Corporate Insolvency and Governance Act 2020 – extension of restrictions. 

Although the landlord’s armoury for commercial rent arrears recovery has been severely restricted by these measures, the issue of a debt claim at court (preceded by a letter before action) continues to be available to landlords who wish to apply pressure on tenants to comply with their lease covenants. Tenants may strive to pay in the face of a county court judgment for the debt, which a landlord may seek to enforce when the restrictions are eventually lifted. Landlords are also well advised to check whether there are any enforceable guarantees that may be pursued, most commonly pursuant to a current guarantee or Authorised Guarantee Agreement (AGA). 

If you would like further information in relation to any COVID-19 commercial landlord and tenant issues, please contact Lynsey Ellard, Legal Director in our Property Litigation Team.