The High Court has granted a summary judgment in favour of a landlord for a tenant’s non-payment of rent and service charges due under a lease irrespective of the COVID-19 pandemic and the Government’s restrictions on the remedies available to landlords.
If so, you need to be ready for the changes in the law happening in March 2022 for unpaid rent debts.
After 25 March 2022, commercial landlords are permitted to exercise their usual remedies of enforcement for any missed payment of rent. However, in cases where a commercial tenant was forced to close their premises or business during the Covid-19 pandemic, the UK Government is giving extra protection from eviction. If you are facing difficulties in paying rent to your landlord, here’s what you need to do.
Every commercial lease requires the payment of rent. Your business rent will usually be payable either monthly or on the next quarter day – 25 March. If your business has missed a payment, or you may not be able to pay when it is next due, you need to be aware of the steps your landlord may consider taking when the law changes at the end of March, to prevent mistakes being made and your business being forced out of its premises. What you should not do, is bury your head in the sand!
While commercial tenants have been protected from eviction for non-payment of rent during the Covid-19 pandemic, your landlord may still be putting pressure on you in other ways if you are struggling to make rent payments according to the terms of your lease.
At the end of March 2022, most of the current covid related restrictions around commercial rent recovery will end. If you have missed a payment of rent, your landlord may be able to take the following enforcement action against you:
- Forfeit (end) your business lease for non-payment of rent after 25 March 2022;
- Commercial Rent Arrears Recovery (CRAR) after 25 March 2022; and
- Issue winding up petitions after 31 March 2022
Any of the above steps will almost certainly result in significant legal costs and your lease may include a provision whereby your landlord’s legal costs are payable by your business. If you act as a guarantor of your business’s lease, or the lease of another business, you will be the easy target for landlords and we would recommend that you talk to us immediately about what we can do to help.
If your landlord decides to take enforcement action for non-payment of rent once the restrictions are lifted, they are likely to be expected to show that they have complied with the Government’s Code of Practice found here, which encourages landlords and tenants to work together in an effort to protect businesses unable to pay their rent during the pandemic crisis.
Many landlords and commercial tenants have reached agreements about rent arrears which have built up during the pandemic but, for those who have not, they should be considering what they should or should not do now in light of the changes being made to the law at the end of March 2022.
Are you a commercial tenant that was forced to close their premises or business because of the pandemic?
As set out in our recent update the Government has published its draft ‘Commercial Rent (Coronavirus) Bill’ (the “Bill”) setting out how commercial landlords and tenants will be required to resolve rent arrears disputes which have accrued during the Covid-19 pandemic.
If you have a business tenancy and was forced to close your premises or cease trading (in whole or part) under regulations during the Covid-19 pandemic from 21 March 2020 to the date the last restrictions were removed from your specific sector, the Government has stepped in again to provide further protection. The Bill proposes to ‘ring-fence’ all commercial rent, service charge and insurance arrears, interest, VAT and rent deposit top-ups for these businesses (“protected rent debts”).
Ultimately, for such commercial tenants with protected rent debts, the moratorium has been extended. You must therefore be very careful not to accept any forfeiture or voluntarily end your lease after 25 March 2022 if you have protected rent debts. However, this protection is only a temporary reprieve, as the intention seems to be that it will be ‘business as usual’ from October 2022.
What restrictions are imposed on a landlord during this period in respect of protected rent debts?
Your landlord will not be able to take any of the following enforcement action in respect of protected rent debts until six months have passed since the commencement of the Bill if neither you or your landlord has applied for arbitration or the date the arbitration process has been concluded:
- Forfeiture of your lease for non-payment of the protected rent debts;
- Use CRAR;
- Pursue a debt claim to recover the protected rent debts;
- Draw down on rent deposits or require rent deposits to be topped up;
- Issue a winding up/bankruptcy petition;
Currently a landlord can still issue a debt claim in Court for protected rent debts, but once the Bill is law, a party can apply to stay (suspend) these proceedings if they were started on or after 10 November 2021 and any new judgments obtained from now on will be open to challenge by arbitration.
Despite these restrictions in place, your landlord may still try to manoeuvre you into a position where you voluntarily surrender the lease.
What will the arbitration process be?
The Bill sets out a prescribed arbitration process for a commercial landlord or commercial tenant to use to settle any outstanding protected rent debts. If you are not able to reach an agreement with your landlord, the arbitration process may be your best chance in getting relief from payment of the whole or part of the debt or deferral of arrears, including allowing payment by instalments which may ultimately save your business!
If you or your landlord decide to use arbitration as a way to settle the protected rent debt, there is a strict timetable, which will make it very easy for you to make mistakes and get it wrong. You will be required to give the arbitrator financial evidence that your business would be viable, if relief were given. It takes time to prepare evidence and if you are not prepared, you may end up only getting some relief or none at all!! We can help you with the arbitration process to make sure you get it right as well as getting together the best evidence in support of your proposal to settle the debt.
We recommend that you talk to us immediately about what we can do to help you and your business.
What should you be doing now?
- If you have the means to pay all or some of your rent arrears, you should do so now.
- Refer to the Code of Practice and engage in negotiations with your landlord to try to resolve your dispute amicably. Parties will be expected to try to reach an agreement before the Bill comes into force and during any arbitration process. Failure to apply the Code of Practice may put you at a greater risk on costs in any future action, whether arbitration or otherwise.
- Start planning your proposal for arbitration including putting together your financial evidence.
Here is how we can help
We have a strong strategy in ensuring you and your business can take full advantage of the protection given by the law. If your landlord is threatening you or your business, this is what we can do to help:
- Review your business’s lease and advise on what your landlord can do and the financial exposures to you, your business and any others involved;
- Identify whether you have a protected rent debt within the scope of the Bill; and assist you in any arbitration process;
- Formally correspond with your landlord in an effort to negotiate settlement of unpaid rent arrears;
- Educate your landlord on the changes in the law that you may benefit from;
- Resist any Statutory Demands or Winding-Up Petitions;
- Deal with any alternative rent recovery steps.
Legal advice should be obtained sooner rather than later, not just when the enforcement action by your landlord is inevitable. Early advice means the parties can be focused on trying to reach an agreement quickly and economically.
If you are not aware of the changes in the law at the end of March, the consequences for your business may be catastrophic!
Correct at the time of drafting
8 March 2022