COVID-19 impact on commercial landlords and enforcement options
The current restrictions on commercial landlords and their ability to take enforcement action against tenants have been extended until 31 March 2021.
The devastating impact of the COVID-19 pandemic forced the government into taking action to prevent many businesses from entirely collapsing. This included protecting businesses from being evicted from their commercial property if they were unable to keep up with their rent agreement.
While the legislations in place have provided an important lifeline for many businesses, they have also put commercial landlords on the backfoot. So, what enforcement options do commercial landlords currently have at their disposal?
Commercial landlord enforcement options in 2021
Forfeiture of commercial leases
A moratorium on forfeiture of commercial lease on the grounds of non-payment of rent was put in place in 2020. Initially, the government planned that the moratorium would end on 31 December 2020, but the increased restrictions that were placed on the UK after Christmas meant that an extension was put in place until 31 March 2021.
As it stands, the current extension will be the final one. This means that, in absence of any further legislation, landlords will be able to forfeit for non-payment of rent from 1 April 2021.
Until that point, forfeiture will still remain an enforcement option for commercial landlords in respect of breaches other than non-payment of rent. Landlords will still have to provide a ‘reasonable period of time’ for the tenant to remedy the breach.
Due to the current restrictions that are in place, what constitutes a reasonable period of time might be longer than expected. The government have encouraged landlords and tenants to follow the government’s Code of Practice for commercial property relationships, to help resolve any potential issues that are likely to arise.
Commercial Rent Arrears Recovery (CRAR)
The government has also extended regulations which restrict commercial landlords’ ability to exercise their rights under the Commercial Rent Arrears Recovery (CRAR) procedure.
Under CRAR, a commercial landlord can serve a notice to a tenant who is in arrears of a certain level of rent. The impact of the pandemic has led to the government increasing the threshold for the amount of arrears that must be due before a landlord can exercise their rights under CRAR. The increased threshold is due to remain in place until 31 March 2021.
Under normal circumstances, statutory demands are used to help secure payment of commercial rent arrears from tenants. However, the introduction of the Corporate Governance and Insolvency Act (CIGA) in 2020 effectively prevented commercial landlords from being able to use this type of enforcement. The restrictions on the use of statutory demands will continue until 31 March 2021.
Many commercial landlords see this is a potential issue, as a certain tenant may abuse the act if they do have the means to pay but choose not to in an attempt to improve their short-term cash flow.
Winding Up Petitions
Under CIGA, it is still possible for a commercial tenant to present a winding up petition, so long as they are able to prove that the COVID-19 pandemic did not have an adverse financial effect on the tenant.
However, presenting a winding-up petition will remain very difficult. Given the evidential difficulty of assessing a company’s financial position in relation to the pandemic, it may only be possible to present a winding up petition for debts which predate March 2020. This will involve demonstrating that the tenant was unable to pay its debts, regardless of any financial impact caused by the pandemic.
How our commercial property solicitors can help
Our experienced commercial property solicitors can work alongside you to help clarify your rights as a commercial landlord and run through your potential legal options during the COVID-19 pandemic.
We have a wide range of combined expertise in commercial property matters, so are well placed to offer you the support and guidance you need to reach a positive outcome.
We appreciate how time sensitive and intricate commercial property matters can be, so we always make sure to provide timely advice that does not leave out any minor details.
Get in touch with our commercial property solicitors in Scunthorpe and Goole
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