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Commercial Tenants: no evictions for 3 months – but what will really happen?

There was an air of inevitability with the announcement, and it is hard to argue against it.  The Government announced on the 23 March that given the unprecedented strain on businesses, any tenants affected by Read more...

There was an air of inevitability with the announcement, and it is hard to argue against it.  The Government announced on the 23 March that given the unprecedented strain on businesses, any tenants affected by Coronavirus would be immune from eviction for the next 3 months.  You can read the full press release here.

One interesting point about the timing is that the 3 months takes us through the March to June traditional quarter virtually in its entirety meaning that come 24 June, landlords (unless further measures are implemented) will again be looking at their leases to see where they stand in terms of evictions and other rights.

Landlords will still in theory have other remedies available to them under their leases.  The first of these remedies will be default interest which is paid when rent (and other sums) is overdue in a lease.    The default rate may be a stated interest rate above base rate (which, having just dropped will reduce the default rate) or it may be calculated by reference to another rate such as the Late Payment of Commercial Debts (Interest) Act 1998 which is a minimum of 8% per annum.  So prudent tenants and tenants that can afford to do so will still where they can continue to pay rent.

At the moment there is still the possibility for landlords to utilise the commercial rent arrears recovery (CRAR) regime which allows landlords to seize a tenant’s goods from the property in order to recover unpaid rent.

In many leases the landlord may have further protection either with a guarantor or the availability of a rent deposit. There is also nothing preventing calling upon these remedies or indeed a landlord making a claim through the Court for the recovery of rent as well as interest and associated costs; all of which ought to be recoverable if the tenant has the means to pay.

But ultimately, where does a commercial landlord really go at the moment?

The reality is that virtually every business has been decimated by the Coronavirus outbreak. The prudent landlords like Argent at its Kings Cross development (you can read more here) have taken a longer term view knowing that supporting its tenants at this challenging time is likely to stand it in much better stead when the markets recover.

The landlords able to take a longer term view will hopefully work with their tenants (perhaps agreeing a short term reduced rent package to assist with cashflow) to ensure both they and their occupiers are in a position to resume trading profitably once we pick up again as a society. For the smaller landlords we are in very choppy waters. As of now the government have not announced any assistance at all for commercial landlords. Their need for money in the bank to meet mortgages may be the death knell for many occupiers who find themselves pressured by their landlords to make payments they simply cannot afford.

In business terms, landlords may well be throwing out the baby with the bathwater.