What can landlords do now to collect commercial rental arrears?

Over the past two years, the rights and remedies available to commercial building owners to collect rent arrears from tenants have been curtailed.

The S82 of the Coronavirus Act 2020 prohibited landlords from forfeiting lease contracts for non-payment of rent, and the Corporate Insolvency and Governance Act 2020 prohibited landlords from issuing statutory demands and canceling debt petitions that arose due to the Covid-19 pandemic. In England, these restrictions expired on March 25, 2022.

After the restrictions end, what treatments are now available to commercial property owners?

The answer to this question depends on whether or not the rent is a “protected rent” under the provisions of the Commercial Rent Delay (Coronavirus) Act 2022.

The definition of protected rent is narrow and applies only to rents owed to companies in the leisure and hospitality sector and parts of the retail sectors — in other words, to hairdressers, beauty salons, bars, gyms, shops, cafes and restaurants who have been forced to close by emergency legislation that has taken effect during the pandemic. The rent arrears that these companies have accumulated during their closing periods are considered rents protected by law.

The rents of the principal tenants are not protected, even if the rents of the sub-tenants who actually occupy the building are protected.

Senior curator Keira Gilbert discusses in detail protected rentals in her article, which you can find here.

All other business rentals are not protected

For all other commercial tenants whose business or property was not subject to closing requirements, all historical and current arrears may be collected in any of the following ways:

  • Issuance of a debt claim for arrears.
  • Commercial Rent Arrears Recovery Notice (CRAR) service and enforcement by CRAR against tenant goods in the property where rent arrears are at least seven days due and payable.
  • Forfeiture of rent arrears, either by peaceful re-entry or by proceedings. The trade-off for this is that the owner may waive the forfeiture implicitly, and the waiver of forfeiture no longer has to be through a specific waiver.
  • Use of insolvency proceedings. Landlords may issue liquidation petitions and legal demands based on outstanding rental debts.
  • Enforcement of obligations on tenants to increase rent deposits.
  • Landlords may withdraw rental deposits to recover outstanding rents where the terms of the rental bond allow.
  • A landlord whose rent is protected under Part 2 of the Landlord and Tenant Act 1954 may oppose a lease renewal based on rent arrears using statutory basis B.
  • In the event of a guarantor for the lease, the landlord may take debt action against the guarantor for arrears.
  • The landlord may also submit an S17 notice and pursue the original tenant under an approved warranty agreement.

Protected Rentals

For a period of six months ending September 24, 2022, protected rents are subject to mandatory arbitration by law, unless the landlord and tenant can reach a negotiated agreement to settle the arrears.

During this stay, all other enforcement measures to recover arrears of protected rents are prohibited. This includes debt action, forfeiture, CRAR, rent deposit withdrawal, and Underground Lease Renewal Opposition (B) (rent arrears) under the Landlord and Tenant Act 1954.

In her article here, Associate Amy Evans outlines the limitations that apply to redeeming protected rentals.

Can the landlord take any steps in relation to the protected rent arrears?

However, there are other considerations that may be useful to landlords regarding protected rent, even during the moratorium.

When a tenant has arrears covering the protected and unprotected periods and makes a payment for an indefinite period, the official guidelines state that any unprotected rent be paid first, and protected rents second. Amy’s article (see above) explains this in more detail.

Although enforcement action is prohibited, the landlord may require payment of rent arrears in accordance with other lease terms.

  • Specifically, the landlord can still demand payment of the protected period rent if the payment of all rents is a prerequisite for exercising the break clause.
  • In the same way, payment of the rent for the protected period may be required in return for the landlord’s consent to waive the lease; Failure to pay rent may be reasonable grounds for the landlord to refuse to agree to the assignment.

Crucially, in either case, if an arbitration award is issued in respect of arrears, the landlord can only demand that the rent be paid up to the amount awarded by the arbitrator.

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