Legal Protections for Commercial Tenants to Continue Until March 2022

This article is up-to-date as of 17th June 2021

Legal protection for commercial tenants has been extended until 25th March 2022, pushed forward from the previous expiry date of 30th June 2021. Whilst this is excellent news for tenants, it may inspire a less favourable reaction from commercial landlords.

Essentially, the protections for commercial tenants ensures landlords cannot evict them for non-payment of rent, if the non-payment is due to COVID-19.

So, what protections for commercial tenants are now in place?

Commercial Rent Arrears Recovery (CRAR) – To prevent rather unceremonious rent collection tactics (in short: turfing a tenant’s stuff out), landlords can now only use CRAR when the total number of days’ outstanding rent is at least 554 days until the 25th March 2022.

Forfeiture of commercial leases – The Coronavirus Act 2020 prevents any forfeiture of commercial leases between 26th March 2020 to 25th March 2022, for any non-payments due to COVID-19.

Prevention of winding up and statutory demands – Between 27th April 2020 and 25th March 2022, filing a winding-up agreement is only possible if it can be proved that the tenant’s finances have not been affected by COVID-19.

Despite the restrictions, there are still ways that commercial landlords can begin to recoup certain losses. This is all without violating the law, any moral obligations, or, perhaps most irritatingly, forfeiting a lease only to be met with a void period on the other side, just when the tenant’s business starts to pick up again.

What options are there for commercial landlords despite the extension to restrictions?

There are still some options commercial landlords and their legal team can take to recoup rent arrears, despite the further extension to restrictions, including:

1. Recovery from former tenants and guarantors

2. Recovery from current guarantors

3. Recovery from subtenants

4. Standard debt recovery proceedings under the agreement of the lease – Most leases specify a rate of interest which will accrue on any outstanding balances owed. This will usually be payable through standard debt recovery proceedings after restrictions end

In the event the above options are not possible, the following procedures could be an option, but will need an expert commercial lawyer’s opinion on a case-by-case basis:

5. Forfeiture after the restrictions end – After the restrictions end in March 2022, the landlord could forfeit the lease due to the tenant’s non-payment of the rent which accrued due to the pandemic, if this remains unpaid. A landlord would need to consider the risk of a void period afterwards, as well as any liability for costs of the newly untenanted property (which would likely fall back to the landlord).

6. Voting in the event of a CVA – To ensure they can recoup as much of the arrears owed as possible, it’s imperative landlords keep their right to vote in the event of a CVA. If landlords make any concessions with tenants, such as deferrals or reductions in rent payments, they should ensure these arrangements terminate when a proposal for a CVA is submitted.

7. Rent and any other sums can still be collected as an expense of administration – With the re-introduction of Crown preference in December 2020, landlords may get less back in the event of administration. As such, this is not a good method to rely on, particularly if the tenant company has a large outstanding bill for certain taxes.

8. Winding-up provisions or statutory demands may be possible – If the landlord can prove the tenant wouldn’t have been able to pay, regardless of COVID-19, a winding-up provision may still be able to take place. This may be difficult to prove, however, and the CIG Act has temporarily removed the threat of both statutory demands and winding-up proceedings. Essentially, this means that this method may only, in practice, be effective for debts which pre-date the COVID crisis (mid-March 2020).

Negotiating the payment of arrears for commercial landlords is a task suited to a legal professional at the best of times, even without the fast-changing landscape of COVID regulations thrown into the mix.

Carlsons Solicitors is a leading firm in commercial property litigation, equipped with in-house barristers and senior solicitors. Simply get in touch with our team for accurate, expert advice.