The Government has announced a further extension of the business rent holiday until the end of 2020, in order to help businesses recover from the impact of Covid-19 and to protect jobs.
The Government’s extension is specifically aimed at the businesses that are struggling to remain in their premises due to the impact of Covid-19 and will provide those businesses with greater security and enable them to focus on rebuilding their businesses until the end of the year, without the threat of eviction. However, the Government has stipulated that businesses should pay their rent where they are able to do so.
What is a business rent holiday?
In ‘normal’ times, a landlord has several options for dealing with a commercial tenant’s non-payment of rent depending on the particular circumstances. These include:
- Debt action
- Insolvency proceedings
- The Commercial Rent Arrears Recovery procedure (CRAR)
- Pursuit of the former tenant under an Authorised Guarantee Agreement (AGA)
- Forfeiture of the lease
- Surrender of the lease
The rent holiday prevents landlords from taking any action to forfeit a commercial lease for non-payment of rent or other sums due under the lease, such as service charges and insurance rent.
However, forfeiture by peaceable re-entry is still available to a landlord for breaches unrelated to non-payment of rent or other sums due under the lease.
Initially, the Coronavirus Act imposed these rules for an initial three-month period, which was then extended until 30 September 2020. The moratorium has now been further been extended until 31 December 2020.
Which commercial leases and tenants does the moratorium apply to?
The moratorium applies to most commercial leases but does not usually apply to ones for terms of less than six months.
If possession proceedings have been commenced before 26 March, the Coronavirus Act provides that there can be no order for possession before 31 December.
Does the moratorium only apply to forfeiture of a lease?
Yes. The moratorium does not suspend the right to rent or other payments; it just suspends the right to forfeit the lease for non-payment until the moratorium ends.
Whilst the moratorium applies, landlords retain the right to:
- Charge interest on the arrears at a rate specified in the lease
- Bring debt recovery proceedings against tenants
- Have recourse to the parent company or other guarantors, rent deposits or other forms of security for payment
Restrictions have also been imposed, or could soon be imposed, on other remedies to recover due and unpaid rent under a commercial lease:
- Commercial Rent Arrears Recovery (CRAR) – From 29 September 2020, the minimum amount of net unpaid rent required before you can exercise CRAR in England and Wales has been increased to an amount equal to 276 days’ rent (having previously been increased from seven to 90 and then 189 days’ rent). On 25 December, this will increase again to 366 days’ rent.
- Statutory demands and winding-up petitions – A temporary ban has been placed on the use of statutory demands (made from 1 March 2020 until 30 September 2020) and winding up petitions (made from 27 April until 30 September 2020) where a company is unable to pay its debts due to the coronavirus pandemic. These periods can be extended by up to six months at a time and, on 16 September, the Government announced that it is considering extending them until 31 December.
Should landlords stop demanding rent after any arrears fall due to protect their right to forfeit once the moratorium ends?
The Coronavirus Act protects landlords in England, Wales and Northern Ireland from un-intentionally waiving the right to forfeit for non-payment of rent or other sums during the period for which the moratorium is imposed.
Negative consequences of the moratorium
Whilst the extension of the moratorium on commercial evictions has been welcomed by the retail and hospitality industry, who have been severely affected by the pandemic, landlords are understandably concerned.
The rent holiday extension could result in landlords having difficulty paying their mortgages, which in turn could hit banks, who may then be less willing to lend.
In addition, some solvent businesses are taking advantage of the moratorium to either not pay rent or seek lower contractual terms in order to preserve cash flow.
What can landlords do?
To avoid leaving retail units vacant, it is expected that rents will be re-set at lower levels over the coming months.
Landlords and tenants should continue to work together to agree on rent payment options if businesses are struggling. In June, the government published a Code of Practice to aid such discussions, which you can view here.
How Blaser Mills Law can help
Specific legal advice on any particular issue relating to a commercial lease or to the current restrictions on landlords’ remedies to recover unpaid rent due to the Covid-19, should be sought before any action is taken. For more information on the contents of this article, or on commercial property in general, please contact a member of the commercial property team on firstname.lastname@example.org or +44 (0) 203 814 2020.