On 31st March 2021 a moratorium which was introduced under The Coronavirus Act 2020, to provide a lifeline to commercial tenants, was due to end. This has now been extended until 30th June 2021. From this date Commercial Landlords will resume the ability to forfeit commercial leases and use Commercial Rent Arrears Recovery (CRAR) provisions to enforce payment of rent arrears.
How does the Coronavirus Act 2020 impact on landlords?
At Lucas Ross – Business Rescue, Recovery & Insolvency we are having increased conversations with commercial landlords who have found their finances stretched due to declining rental receipts.
Commercial rents represent a significant expense for businesses. To mitigate the impact on businesses likely to fall into rent arrears the government introduced a moratorium on lease forfeiture for non-payment of rent by commercial tenants of more than six months for non-payment of ‘any sum’ under a lease. This includes a tenant’s liability for outgoings other than the ‘basic’ rent amount, such as service and maintenance charges, and insurance.
A tenant’s liability for these payments is not removed by the Coronavirus Act and the outstanding sums remain payable.
What does lease forfeiture involve and how has the Coronavirus Act, 2020, affected a landlord’s right to forfeit commercial leases?
When a commercial tenant fails to meet their liability to pay rent under their lease, the landlord may be able to re-take possession of the property or premises by forfeiting the lease. This means the lease comes to an end, and in practical terms the landlord or their representative – a bailiff, for example – will forfeit the lease by peaceable re-entry to the property, changing the locks and displaying notices regarding their actions.
Owing to the unprecedented challenges of the pandemic, the government introduced a moratorium on lease forfeiture by commercial landlords to help. This arguably left landlords with very limited powers of recourse if tenants fell behind in paying their rent. Coupled with extensions regarding the issue of statutory demands or winding up petitions for the same period, commercial landlords have been left with no real options to enforce debts, instead forcing them to look toward guarantees or to draw down from rent deposits.
Lenders to the commercial property sector have generally been supportive of their borrowers’ issues, via the provision of loan payment holidays / debt restructures. The Government has also encouraged Landlords and Tenants (via a recommended framework) to enter constructive dialogue. In many cases this has enabled agreements, however many landlords vulnerability from tenants who either cannot or won’t pay has been prominent within our conversations.
What support is available for businesses in rent arrears?
It is highly advisable to contact your commercial landlord as soon as possible. This may allow you to negotiate a lower rental payment for a period, but it also demonstrates that you acknowledge the necessity of taking your responsibilities seriously.
You may also wish to examine alternative funding options to secure funding to repay your landlord or indeed improve the cash flow position.
Company Voluntary Arrangement
A Company Voluntary Arrangement (CVA) is a legally binding agreement that can help your business to re-establish itself in the market, riding out the effects of the coronavirus pandemic on trade and cash flow.
With the furlough scheme a temporary measure, many businesses are at risk of falling further into financial hardship once it comes to an end. Salary payments previously covered by the furlough scheme will start to fall back upon the company, making meeting their rental obligations even more difficult; however, landlords fear that should they not be able to recover arrears, or prevent them from accruing further, they too could find themselves in financial difficulty.
Expert Advice Available
Lucas Ross – Business Rescue, Recovery & Insolvency is a leading business rescue specialist in the UK and can provide further advice on the implications of the Coronavirus Act and the potential for lease forfeiture. Please contact us at help@lucasross.co.uk or call us on 0330 128 9489.
