Covid-19 Update: Further extension to restrictions for Landlords on recovering unpaid rent.
As restrictions are now in place until 30 June 2021, we look below at the impact of the extended moratorium
Forfeiture (The termination of a lease as a result of non-payment of rent, general breaches of covenant or insolvency)
- As a result of the extended moratorium it is not possible to seek to forfeit commercial leases for non-payment of rent until 30 June 2021 (at the earliest). This does not however effect a landlords ability to forfeit on other grounds.
Commercial Rent Arrears Recovery scheme (CRAR)
- Under normal circumstances a landlord can pursue rental arrears under the Commercial Rent Arrears Recovery scheme (CRAR), or by way of Statutory Demand. CRAR allows for the seizure and sale of a tenants goods to recover arrears. It applies to principal rent (and any interest and VAT thereon), but importantly does not apply to service charge or insurance rent. Whilst this may seem an attractive option at face value, under the current restrictions CRAR is only exercisable if at least 457 days’ rent is overdue up to 24th June; and 554 days from 24th June to 30th June. As such, in reality for most, by the time rent is overdue for 457 days it is widely expected / hoped that we will have emerged from the pandemic in any event.
- A statutory demand is a formal written demand for payment of a debt requiring payment within 21 days. If the demand is not complied with, this can then be used as grounds to present a winding-up petition. As a result of the continued restrictions, it is not possible to present a winding up petition based on a statutory demand issued between 1 March 2020 and 30 June 2021, nor present a winding up petition during the same period based on a company’s inability to meet its debts (unless you have reasonable grounds to evidence Covid-19 has not had a financial impact on the company or that the debt issues would have arisen irrespective). As such, whilst it is still technically possible to serve a statutory demand, in reality, there appears little point in doing so.
- Landlords can issue court proceedings to recover sums due under a lease as a contractual debt. Whilst not caught by the restrictions affecting forfeiture, CRAR and statutory demands, litigation can be protracted and expensive, meaning by the case is heard it is likely other - more favourable - remedies are again available. There are also likely to be additional challenges to this method as a result of the continued lockdown restrictions generally.
So, as a landlord what are your options before 30 June 2021?
Whilst undoubtedly limited in scope, the positive spin is the moratorium does not remove a tenants obligation to pay monies due under the terms of the lease, but simply seeks to defer a landlords ability to enforce payments.
As such, if action is required prior to 30 June 2021:
- A landlord can still apply default interest (commonly 4% above base) on late payment of monies due under the lease, where the terms allow or provide for the same. Which will ensure, when ultimately paid, the landlord will be compensated for the delays in payment.
- If a rental deposit is held, depending on the specific terms of the rent deposit deed, it should be possible to draw down against monies held. Whilst this may alleviate some pressure on cash flow temporarily, it will be difficult during the moratorium period for landlords to enforce any obligation on a tenant to replace the amount withdrawn, resulting in the security held being reduced.
- If there is a guarantor, a landlord remains free to seek payment of rent (and other sums due) from a guarantor directly, but again this may be protracted and expensive to enforce.
- A landlord remains free to agree such payment plans as may be necessary (which continues to be the most popular option in practice to achieve a fair and appropriate position, tailored to specific circumstances.
If you are a landlord and would like to discuss any of the above, please contact Craig Burton, Elise Sherwell or Chehraz Fox.