Commercial Rent Arrears: Where do we stand in the last quarter of 2020?
October 28, 2020
There has continued to be yet more legislation in this area, predominantly extending deadlines and, in places, clarifying restrictions. To give a simpler overview of the current position, the key provisions have been summarised in the table below.
|Option||Summary of Remedy||Current Restrictions|
|Forfeiture Peaceful Re-entry||Where the Tenant is in arrears a Landlord could peaceably re-enter the premises without notice and take possession of the premises without Court action by changing the locks, effectively ending the Lease. Tenants can apply to the Court for relief from forfeiture but this would only usually be available to Tenants if they paid the arrears plus the Landlord’s costs.||Forfeiture by re-entry suspended from 26th March 2020 to 31st December 2020. Any action by a Landlord in the period up to 31st December 2020 will not result in a waiver of a right to forfeit for non-payment of rent unless it is express and in writing. The right to forfeit should be available again if rent remains unpaid when the restrictions are lifted. However, it should be noted that this deadline has already been extended a number of times and there is a strong possibility that it may be extended again in the new year.|
|Forfeiture Possession Claim||The Court is now processing Possession Claims again and certain claims are being prioritised for hearings. The most relevant priority criteria for Commercial Properties are: Cases with allegations of anti-social behaviour.Cases with extreme alleged rent arrears accrued (ie, more than 12 months) Cases involving alleged squatters, illegal occupiers or persons unknown. Cases with allegations of fraud or deception. Cases with allegations of unlawful subletting. Cases with allegations of abandonment of the property, non-occupation or death of defendant.||The backlog at the Courts means the process is moving quite slowly. If a possession claim was issued before the stay was imposed, then it will need to be reactivated by serving notice to the Court. A statement regarding what is known about the impact the Pandemic has had on the tenant needs to be submitted to the Court in respect of both reactivated and new claims. There are some delays in enforcement in areas where the local lockdown level impedes bailiff activity. Generally possession orders will not be enforced in the run up to Christmas.|
|Commercial Rent Arrears Recovery (CRAR)||CRAR replaced the common law remedy of distress for rent arrears in 2014. It allows a Landlord to instruct an enforcement agent to take control of a Tenant’s goods and sell them in order to recover the equivalent value to any rent arrears.||CRAR cannot be used unless the Tenant is in arrears of at least: |
– 189 days rent on or after 24th June 2020 (but before 29th September 2020).
– 276 days rent on or after 29th September 2020 (but before 25th December 2020); or
– 366 days rent on or after 25th December 2020 (but before 31st December 2020).
Practically this means is that arrears from March onwards are effectively protected from enforcement using this method until 31st December 2020.
|Statutory Demand||This is a written demand for payment of a debt. It is often used as a quick and relatively inexpensive method by Landlords seeking to recover rent arrears. It is issued to put pressure on Tenants to pay the sums due prior to more formal legal action in the form of a winding up petition.||Demands issued between 1st March 2020 and 31st December 2020 cannot form the basis of a winding up petition presented at any point after 27th April 2020. Effectively, this means that until 31st December 2020 statutory demands will be considered void and have no impact. There is a possibility that this restriction may be extended into the new year.|
|Winding-up Petition||This is an application to the Court for a debtor to be put into compulsory liquidation on the grounds that it is unable to pay its debts. Landlords would normally have the option to present a winding-up petition at Court. This would usually be preceded by a statutory demand, which had not been paid for 21 days.||Petitions cannot be successfully presented between 27th April 2020 and 31st December 2020 unless it can be proved that the company would be unable to pay its debts regardless of Covid-19. Practically, there will be very few situations where it could be said that Covid-19 has had no impact on the Tenant. There is a possibility that this restriction may be extended into the new year.|
|Debt proceedings||A Landlord may issue debt proceedings in Court to recover unpaid rent. This route used to be less common but with the removal of the option to issue effective statutory demands, this is becoming the most popular method at present of recovering rent arrears where it is felt the tenant is in a position to make payment.||There are no restrictions at present on debt claims. The Court does have a backlog but is now processing these reasonably quickly. There are some delays in enforcement in areas where the local lockdown level impedes bailiff activity.|
|Administration Order||A creditor can make an application to the Court for an administrator to be appointed in respect of a company. Once that appointment has been made a moratorium applies against certain actions against the company without permission of the Court. This is a quite costly and complex method and, as such, it is rarely used by Landlords.||No restrictions.|
|Rent Deposit||Many Landlords hold a rent deposit on which they can draw down if rent is not paid. Notice is required in certain circumstances. It is often advisable to preserve the rent deposit for as long as possible by pursuing a solvent Guarantor or Former Tenant first as, once the deposit is gone, it can be very difficult to persuade a Tenant to bring it back up to an appropriate level.||No restrictions.|
|Pursue a Guarantor under the existing Lease||Where there is a Guarantor in place it may be possible to pursue them for any arrears. It will only be effective if the Guarantor is solvent. Exercising this option may waive a Landlord’s right to forfeit for rent arrears if the arrears are paid off.||No restrictions.|
|Pursue former Tenant or Guarantor||It may be possible to pursue a former Tenant or Guarantor who has entered into an Authorised Guarantee Agreement (AGA). To do this a Section 17 Notice must be served on a former Tenant or Guarantor within 6 months of the arrears falling due.||No restrictions.|
|Notice to Sub-Tenant to pay the rent to Superior Landlord||It is possible to serve a Notice requiring the Sub-Tenant to pay the rent that it owes directly to a Superior Landlord rather than the intermediate Tenant. It is done by serving a Section 81 Notice directly on the Sub-Tenant. Landlords can only serve a valid Section 81 Notice on a Sub-Tenant where it is entitled to exercise CRAR against the intermediate Tenant. This means that all of the provisions concerning CRAR, including the type of rent and amount of rent outstanding, are applied.||Please see restrictions under CRAR above. Practically this means is that arrears from March onwards are effectively protected from enforcement using this method until 31st December 2020.|