Landlords – Business (Tenancies) as Usual
One of the primary frustrations for landlords where business tenants have failed to pay rent during the COVID-19 pandemic has been the restrictions placed upon the usual range of remedies by legislation enacted to protect tenants.
However, these have now ended, with the protected period coming to an end on 25 March 2022. The result is that landlords can now use the following enforcement options with immediate effect:
A. Commercial Rent Arrears Recovery (“CRAR”):
The minimum amount of unpaid rent before CRAR can be exercised has been reduced from 554 days’ rent to 7 days’ rent (i.e. the pre-pandemic level).
Landlords can now forfeit a lease by way of peaceable re-entry or by court proceedings for non-payment of rent, except any “protected rent” under the Commercial Rent (Coronavirus) Act 2022 (as to which, see below).
In addition, from 1 April 2022, landlords will once again, be able to issue statutory demands to tenants for rent arrears exceeding £750 and present a winding up petition if the tenants fail subsequently to pay the sums demanded within 21 days.
However, there are two important points that landlords should bear in mind when taking action for rent arrears.
Commercial Rent (Coronavirus) Act 2022
This Act came into force on 25 March 2022 and provides a statutory right for landlords and tenants to refer a dispute concerning “protected rent” to arbitration for a binding award.
Where some businesses were closed forcibly during the pandemic, including non-essential retail, leisure, hospitality and nightclubs, any arrears of “protected rent” (rent, service charge, insurance rent, interest and VAT) that accrued during the relevant “protected period” are ring-fenced and protected from action for a further period of 6 months until 25 September 2022.
These restrictions prevent landlords from issuing money claims, exercising CRAR, forfeiting and pursuing a winding up during the 6 months for the “protected rent” and allows tenants to refer the dispute for arbitration.
The “protected period” depends on the type of business affected by coronavirus restrictions. These are (for English properties):
Hospitality and nightclubs 21 March 2020 – 18 July 2021
Garden centres 21 March 2020 – 13 May 2020
Non-essential retail and leisure 21 March 2020 – 12 April 2021
Arrears outside of the “protected period” are not protected rent and can be enforced by landlords, but they should be careful not to include a “protected rent” debt within the sum to be enforced should there be a mixture of protected and non-protected rent debt.
Waiver of the right to forfeit
During the recent moratorium on forfeiture, it was not possible for a landlord to waive the right to forfeit, unless the waiver was expressly agreed in writing.
From 26 March 2022, if landlords wish to pursue forfeiture, they will need to be careful not to inadvertently waive the right to forfeit, for example by demanding rent, serving notices under the lease, exercising CRAR etc.
In addition, where landlords wish to forfeit for rent arrears including the quarter’s rent falling due on 25 March 2022, they should check the grace period in the forfeiture clause (quite often landlords cannot forfeit a lease for non-payment of rent until the grace period expires – which is usually 7, 14 or 21 days).
Landlords and tenants should both be aware of these significant changes. Any landlord wishing to take action to recover arrears will need to bear the above in mind. Any tenant who is in arrears and to whom the new legislation applies should be aware of the steps that landlords can now take, and should take legal advice to protect their position and to ensure that the landlord’s conduct is correct.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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