Prevention of Forfeiture and Winding Up – Extension of Time

In anticipation of the June quarter’s rent becoming due this week (24 June) the Government has confirmed an extension in time to the measures introduced earlier this year preventing landlords from forfeiting commercial leases, pursuing statutory demands / winding up petitions and utilising Commercial Rent Arrears Recovery (CRAR) until at least 30 September 2020.

The announcement was combined with the Government publishing a “Code of Practice for commercial property relationships during the COVID-19 pandemic”. The Code is not legally binding and presents various principles that landlords and tenants are to consider whilst negotiating payment terms for unpaid rent. The underlying message of the Code is that tenants are to pay their rent where they can afford to and is described by Kate Nicholls of UKHospitality as a “first step” towards forging a solution for landlords and tenants.

The extension to delay landlords forfeiting commercial leases and instigating aggressive enforcement action for unpaid rent are to be implemented as follows:

• Forfeiture: the Coronavirus Act 2020 will be amended to extend the time period for suspension of the forfeiture of evictions from 30 June to 30 September.
• CRAR: secondary legislation will be introduced to prevent use of CRAR unless 189 days of rent is owed (effectively extending the period from 30 June to 30 September).
• Statutory demands / winding up petitions: an amendment to the Corporate Insolvency and Governance Bill has been tabled to extend the temporary ban on the use of statutory demands and winding-up petitions where a company cannot pay its bills due to Coronavirus until 30 September.

The above extensions allow for the current status quo to be retained for non-payment of rent (and other sums due) by tenants of commercial leases. It is important to note that the measures do not remove the obligation on tenants to pay rent and the restrictions simply delay the opportunity for landlords to enforce the debt. Therefore, once the restrictions are lifted, landlords will be able to use their usual remedies for any unpaid rent or sums owed during the whole restriction period (expiring on 30 September 2020).

Landlords and tenants of commercial property should also bear in mind that the Government has not yet intervened to prevent the following landlord’s remedies for unpaid rent and other sums due:

• default interest accumulating for late payment of sums due;
• drawing down on any rent deposit provided by tenants that may be held by landlords under a rent deposit deed or the like;
• pursuing guarantors (either direct guarantors of the tenant or guarantees provided by a previous tenant under any authorised guarantee agreement); and
• using debt recovery court proceedings such as trying to obtain a County Court Judgment.

Please note that this information is provided for general knowledge only and therefore specific advice should be sought for individual cases.

For further information, please contact Paul Jagger