Coronavirus: Guidance for Commercial Property Landlords
May 15, 2020 | Shakeel Mir
At the beginning of May, the UK began making its first tentative steps towards normality after lockdown rules were marginally relaxed. But with the serious threat of a second wave of coronavirus infections and the looming presence of a global recession on the horizon, there is a long way to go before businesses in the UK can hope to see anything like a return to normality.
So what does this mean for commercial property landlords? As with many areas of law, the rights and powers of commercial property landlords have seen rapid changes in response to the unprecedented impact coronavirus has had on UK businesses, and as the situation develops, these changes will no doubt continue.
What is the new law?
On March 25th, the UK Government passed the Coronavirus Act 2020, which introduced or altered a wide range of laws in response to the current crisis.
Section 82 of this act states that no acts of forfeiture may be enforced in response to non-payment of rent for three months beginning March 27th 2020. That means that until the end of June, commercial property landlords have no powers to forfeit leases or evict their business tenants if those tenants do not pay rent.
Are landlords able to recover arrears from a tenant by any other means?
Ordinarily, if a tenant fell into arrears with their rent, a landlord could look to other means to recoup the sum owed to them. Commercial Arrears Rent Recovery (CRAR) rules state that if a tenant owes a sum equivalent to more than seven days rent, a landlord can issue a notice of enforcement of CRAR procedure and, after another seven days’ notice, begin seizing the tenants’ goods and selling them.
An amendment passed shortly after the Coronavirus Act changed the terms of CRAR: a landlord must now be owed more than ninety days’ worth of rent before they can issue notice to their tenant of CRAR proceedings, effectively suspending the use of this procedure until after the moratorium on forfeiture has been lifted.
Is there any other course of action a landlord can take?
Updates to the law have essentially left landlords and tenants in a kind of stalemate. Tenants are unlikely to be able to claim frustration of their lease, for example, and landlords have no obligation to provide services to their tenants if the coronavirus impedes them. There is no legal obligation to reduce or suspend rent payments, even if a tenant faces insolvency, but the moratorium on forfeitures has put a temporary stop on the collection of any rent owed, and the alterations to CRAR mean this rent cannot be collected through other means.
Like so many other areas of life, coronavirus has put the business of commercial property leasing on hold. For now, at least, the most viable course of action is to wait.
What does the future hold?
It may sound trite, but it is true that the only certainty in these times is uncertainty. At the time of writing, Chancellor Rishi Sunak has just announced a four-month extension to the furlough scheme in place to support UK businesses to retain employees who cannot work because of the coronavirus. It is quite reasonable to assume that other measures, such as the moratorium on forfeiture, may be subject to a similar extension or to other changes as yet unannounced.
It is equally uncertain what will happen after these measures expire. There is currently nothing restricting landlords from demanding rent in arrears, and charging interest on it, once the moratorium has expired. Where tenants can afford to do so, they are urged to continue to pay the rent and continue to comply with the covenants in the lease. At this time the most important thing landlords and tenants can do is keep in communication with one another, being clear on where each party stands, their current position and their future intentions, so that no nasty surprises arise down the line.
How Elite Law Solicitors can help
Shakeel Mir is a solicitor and the Head of our Commercial Property team. He can provide specialist legal advice in relation to all aspects of Commercial Property Law.
If you have any queries relating to any of the issues discussed in this article, please get in touch with Shakeel by calling 0800 086 2929, emailing email@example.com or completing our Free Online Enquiry Form.
The content of this article is for general information only. The information in this article is not legal or professional advice.