Commercial landlords are facing massive rent shortfalls as businesses collapse because of the lockdowns or tenants are choosing not to pay while they are protected from forfeiture.
The Financial Times reports that Land Securities, one of the largest commercial landlords only received around a third of the rent due on the last quarter date, 25 December.
And for smaller landlords, possibly with mortgages to service, the financial pain is severe.
Forfeiture is the landlord’s right to bring a lease to an end for non-payment of rent. Leases generally stipulate that the right of forfeiture arises when rent is outstanding for a period of 14 or 21 days.
Last June the Government issued a Code of Practice for Commercial property relationships during the Covid-19 pandemic. Landlords are urged to “provide concessions where they reasonably can”. The suggested concessions include:
- a full or partial rent-free period
- a deferral of the whole or part of the rent for a payment period
- monthly rental periods
- rent variation
- waiving interest on unpaid rent
- using rent deposit with no requirement on tenant to immediately top it up
The obvious benefit to the landlord for negotiating a compromise is that the tenant remains in occupation. Having to pay business rates and market a vacant property in the current climate is not an attractive option.
But what if these options are not realistic in the particular circumstances?
Where the tenant is unlikely to be able to pay the rent in the future, the landlord should consider the following options:
- Commercial rent arrears recover (CRAR) – Currently it is only possible to take this step to recover the debt if the tenant owes at least 366 days’ rent. This restriction is due to end on 31 March 2021, (so long as the Government does not legislate to prolong the restrictions).
- Pursuing the guarantor named in the lease or a previous tenant/guarantor if the lease was assigned to the current tenant.
- Statutory demand or winding up petition – Currently there are restrictions in place which effectively restrict a commercial landlord from taking this step against a tenant. The restrictions are due to end on 31 March 2021.
- Money Claim in the County Court – A judgment for rent arrears can be transferred up to the High Court to obtain a writ of control. The Enforcement Officer then has to give seven days’ notice of enforcement, whereupon taking control of goods can then take place, as there are no restrictions or moratorium on the enforcement of judgments under a writ of control at commercial premises (unless part of the premises is residential). Also, bear in mind, that with a writ of control, the enforcement agents are permitted to obtain entry to any of the addresses the judgment debtor is trading from, i.e. unlike with CRA where enforcement is restricted to attending only the demised premises
We recommend that landlords seek legal advice regard to any of these options. There are pitfalls in the complexity of the covid-19 legislation. For example, if you embark on CRAR or winding up the tenant, the process is likely to be continuing after 31 March 2021. Currently the landlord is protected from waiving his or her right to forfeit for non-payment of rent but after 31 March, that will no longer apply. After that date you could lose you right to forfeit the lease on the basis of the arrears accumulated during the covid lockdown by unintentionally waiving the right.
Please contact one of our Litigation Solicitors for further advice.
This article was written by our own Litigator Justine McCool.