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Rent arrears recovery and protection

Following our previous article on this topic, the government has extended the protections available to commercial and residential tenants. This article also outlines the remedies available for landlords.  FORFEITURE Section 82 of the Coronavirus Act Read more...

Nick Marshall

Director

  • Real Estate Investment
  • Commercial Real Estate
  • Corporate Office Advisory

Following our previous article on this topic, the government has extended the protections available to commercial and residential tenants. This article also outlines the remedies available for landlords. 

FORFEITURE

Section 82 of the Coronavirus Act 2020 (‘the Act’) has been extended to 31 December 2020. The Act prevents any forfeiture, whether by proceedings or peaceable re-entry, for non-payment of any sums due under the lease. The legislation does not waive or defer a tenant’s obligation to pay rent under a commercial lease, only an express waiver will do so.

Despite the restrictions on forfeiture, a landlord may forfeit a lease on any other grounds by way of peaceable re-entry provided that no force is used against anyone in the premises who opposes re-entry and there is no eviction of anyone lawfully residing at the premises. 

STAY ON ALL POSSESSION PROCEEDINGS

Initially, Practice Direction 51Z stayed all possession proceedings for 90 days from 21 March until 25 June 2020, except claims against persons unknown. This was further extended to 20 September 2020 and Practice Direction 55C outlines the new requirements for possession proceedings:-

  1. For claims issued before 3 August 2020 and provided that a final order has not been made, the landlord must service a ‘reactivation notice’ in order for the claim to be relisted, listed, heard or referred to a judge by 4pm on 29 January 2021. After this date, the claim will be automatically stayed. There is no prescribed form for a reactivation notice but it must meet the criteria listed in Practice Direction 55C.
  2. If a trial date has already been provided, the landlord must serve the reactivation notice no later than 42 days before the hearing date, otherwise the trial will be vacated. 
  3. For claims on or after 3 August 2020, the rules are outlined in para 6.1 of Practice Direction 55C, the Claimant must: 
    1. Bring to the hearing two copies of a notice:
      1. In a claim to which the Pre-Action Protocol for possession claims by social landlords is applicable, confirming that the claimant has complied with that Pre-Action Protocol and detailing how the claimant has done so;
      2. In all claims, setting out what knowledge that party has as to the effect of the coronavirus pandemic on the defendant and their dependants; and
    2. Serve the notice on the defendant not less than 14 days prior to the hearing. 

From 20 September 2020 to 28 March 2021, there is no longer an eight week window for an initial hearing on possession claims. Therefore, there is likely to be several delays for these proceedings as the courts deal with their backlog.

It is also important to note that landlords must give at least 6 months’ notice when seeking possession under s.83 of the Housing Act 1985; s.8 and s.21 of the Housing Act 1988; and against tenants with accumulated rent arrears of less than 6 months’ rent. For more information, please see our update on this topic. 

CRAR

Landlords are still prevented from using CRAR and the limit of outstanding arrears has increased to 336 days’ rent (previously 276 days’). This restriction also now applies until 25 December 2020. For these purposes, rent only includes the charge for use, occupation and interest, service charge and insurance premiums are not included. 

Where a tenant sub-let its premise, CRAR permits the superior landlord to serve a notice under s.81 of the Tribunal, Courts and Enforcement Act 2007 on the subtenant. This will mean that the subtenant pays its rent directly to the superior landlord for arrears directly owed by the immediate tenant. If the subtenant fails to pay the arrears, the superior landlord can exercise CRAR and other remedies in so far as they are not permitted by the coronavirus restrictions. 

STATUTORY DEMANDS

The government has also extended The Corporate Insolvency and Governance Act 2020 (“the CIGA”), the key provisions include:- 

  1. No winding up petitions can be presented on or after 27 April 2020 on the ground of an invalid statutory demand served between 1 March 2020 to 31 December 2020; and
  2. No winding up petitions can be presented from 27 April 2020 until 31 December 2020 by a creditor on the basis that a company is unable to pay its debts as they fell due unless a creditor has reasonable grounds for believing that coronavirus has not worsened the debtor’s financial position or the debtor could not have paid its debts even if there had been no such worsening of its financial position.

THE CODE OF PRACTICE

The Code of Practice for Landlords and Tenants of Commercial Property (“the Code”) is expected to remain in place until June 2021. Whilst it is voluntary, the Code is intended to support landlords and tenants to negotiate affordable rental agreements. 

OTHER REMEDIES FOR LANDLORDS 

  1. A landlord may be able to recover rent arrears and other sums due under the lease from former tenants and guarantors. However, landlords should be aware of the strict timelines and requirements imposed by the Landlord and Tenant (Covenants) Act 1995 when using this remedy.
  2. A landlord could recover arrears from a rent deposit as there are no current recourses. However, the Code suggests that landlords should withdraw monies from the rent deposit on the understanding that they will not require them to be topped up before it is “realistic and reasonable” to do so.   
  3. A landlord may issue claims under Part 7 and 8 of the Civil Procedure Rules in either the county courts or the High Court to recover rent arrears from tenants. If rent is payable “without set-off, deduction or counterclaim” under the lease, it may be possible for a landlord to seek a summary judgement on its claim. 

In light of the above options available for landlords, tenants are encouraged to pay rent and any other sums due under the lease wherever possible. In most leases, where rent and any other sums are unpaid, interest accrues on the unpaid sums at a specified interest rate. If tenants are not able to pay the arrears, they should seek a financial arrangement with their landlords as soon as possible. 

Nick Marshall, Director and Sona Shah, Trainee Solicitor

If you would like to discuss any of the topics raised in the above article, please call us on +44 (0)20 7936 8888, email on enquiries@lawstep.co.uk or contact a member of the team below.

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